[Federal Register Volume 73, Number 143 (Thursday, July 24, 2008)]
[Proposed Rules]
[Pages 43194-43200]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-16998]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 73 and 76

[MB Docket No. 08-90; FCC 08-155]


Sponsorship Identification Rules and Embedded Advertising

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission seeks comment on proposed 
rule changes to make sponsorship identification disclosures more 
obvious to consumers. The Commission specifically seeks comment on 
current trends in embedded advertising and potential changes to the 
current sponsorship identification regulations with regard to embedded 
advertising.

DATES: Comments for this proceeding are due on or before September 22, 
2008; reply comments are due on or before October 22, 2008.

ADDRESSES: You may submit comments, identified by MB Docket No. 08-90, 
by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: For additional information on this 
proceeding, contact John Norton, [email protected], or Brendan 
Murray, [email protected], of the Media Bureau, Policy Division, 
(202) 418-2120.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking (NPRM), FCC 08-155, adopted on June 13, 2008, 
and released on June 26, 2008. The full text of this document is 
available for public inspection and copying during regular business 
hours in the FCC Reference Center, Federal Communications Commission, 
445 12th Street, SW., CY-A257, Washington, DC 20554. These documents 
will also be available via ECFS (http://www.fcc.gov/cgb/ecfs/). 
(Documents will be available electronically in ASCII, Word 97, and/or 
Adobe Acrobat.) The complete text may be purchased from the 
Commission's copy contractor, 445 12th Street, SW., Room CY-B402, 
Washington, DC 20554. To request this document in accessible formats 
(computer diskettes, large print, audio recording, and Braille), send 
an e-mail to [email protected] or call the

[[Page 43195]]

Commission's Consumer and Governmental Affairs Bureau at (202) 418-0530 
(voice), (202) 418-0432 (TTY).

Summary of the Notice of Inquiry and Notice of Proposed Rulemaking

I. Introduction

    1. We solicit comment on the relationship between the Commission's 
sponsorship identification rules and increasing industry reliance on 
embedded advertising techniques. Due, in part, to recent technological 
changes that allow consumers to more readily bypass commercial content, 
content providers may be turning to more subtle and sophisticated means 
of incorporating commercial messages into traditional programming. As 
these techniques become increasingly prevalent, it is important that 
the sponsorship identification rules protect the public's right to know 
who is paying to air commercials or other program matter on broadcast 
television and radio and cable. Accordingly, we seek comment on current 
trends in embedded advertising and potential changes to the current 
sponsorship identification regulations with regard to embedded 
advertising.

II. Notice of Inquiry

    2. Product placement is the practice of inserting ``branded 
products into programming in exchange for fees or other 
consideration.'' The Writers Guild and others have made a distinction 
between the mere use of products as props in television programming and 
the integration of the product into the plot of the story. Product 
placement is the placement of commercial products as props in 
television programming, whereas product integration integrates the 
product into the dialogue and/or plot of a program. The purpose of 
embedded advertising, such as product placement and product 
integration, is to draw on a program's credibility in order to promote 
a commercial product by weaving the product into the program. The use 
of embedded advertising is escalating as advertisers respond to a 
changing industry. Digital recording devices (DVRs) allow consumers to 
skip traditional commercials, giving rise to interest in other means of 
promoting products and services. In addition, concerns have been raised 
that the availability of more programming options may translate into 
lower audience retention during commercial breaks. The industry appears 
to be turning increasingly to embedded advertising techniques. PQ Media 
estimates that between 1999 and 2004, the amount of money spent on 
television product placement increased an average of 21.5 percent per 
year. For 2005, PQ Media estimates that the net value of the overall 
paid product placement market in the United States increased 48.7 
percent to $1.50 billion. Product placements for primetime network 
programming, according to Nielsen's Product Placement Services, 
decreased in 2006, but the first quarter of 2007 shows an increase in 
product placements in Nielsen's Top 10 shows.
    3. These trends are also reflected in the new types of advertising 
offered by certain networks and radio stations. The CW network, for 
example, offers ``content wraps,'' serialized stories within a group of 
commercials that include product integration, and ``cwikies,'' five 
second advertising slots interspersed in regular programming. Fox 
Sports Network claims a specialty in ``product immersion,'' the 
practice of ``immersing products into programs * * * so that they 
really feel like it is part of the show.'' NBC has instituted a policy 
of bringing in advertisers during programming development. In 2004, 
Universal Television Networks sold to OMD Worldwide the exclusive 
rights to product placement position in a miniseries. The goal of many 
of these new marketing techniques is to integrate products and services 
seamlessly into traditional programming.
    4. The Commission's sponsorship identification rules are based on 
Sections 317 and 507 of the Communications Act of 1934, as amended 
(``Communications Act''), and are designed to protect the public's 
right to know the identity of the sponsor when consideration has been 
provided in exchange for airing programming. Section 317 generally 
requires broadcast licensees to make sponsorship identification 
announcements in any programming for which consideration has been 
received. Section 317(c) requires broadcasters to ``exercise reasonable 
diligence'' in obtaining sponsorship information from any person with 
whom the licensee ``deals directly.'' Section 507 of the Communications 
Act establishes a reporting scheme designed to ensure that broadcast 
licensees receive notice of consideration that may have been provided 
or promised in exchange for the inclusion of matter in a program 
regardless of where in the production chain the exchange takes place.
    5. Sections 73.1212 and 76.1615 of the Commission's rules closely 
track the language of Section 317 of the Communications Act. The rules 
apply regardless of whether the program is primarily commercial or 
noncommercial and regardless of the duration of the programming. The 
rules do not require sponsorship identification, however, when both the 
identity of the sponsor and the fact of sponsorship of a commercial 
product or service is obvious. Thus, a sponsorship announcement would 
not be required when there is a clear connection between an obviously 
commercial product and sponsor. Furthermore, with the exception of 
sponsored political advertising and certain issue advertising, the 
Commission only requires that the announcement occur once during the 
programming and remain on the screen long enough to be read or heard by 
an average viewer. Other decisions are left to the ``reasonable, good 
faith judgment'' of the licensee. The Commission has issued numerous 
public notices over the years reminding industry participants of their 
sponsorship identification obligations. In the past, the Commission has 
specifically reminded the industry that such obligations extend to 
``hidden'' commercials embedded in interview programs.
    6. Providing ``special safeguards'' against the effects of 
overcommercialization on children, the Children's Television Act 
imposes time limitations on the amount of commercial matter in 
children's programming. The Commission also has several longstanding 
policies that are designed to protect children from confusion that may 
result from the intermixture of program and commercial material in 
children's television programming. The Commission requires broadcasters 
to use separations or ``bumpers'' between programming and commercials 
during children's programming to help children distinguish between 
advertisements and program content. The Commission also considers any 
children's programming associated with a product, in which commercials 
for that product are aired, to be a ``program-length commercial.'' Such 
program length commercials may exceed the Commission's time limits on 
commercial matter in children's programming and expose the station to 
enforcement action. The Commission has also stated that this program-
length commercial policy applies to ``programs in which a product or 
service is advertised within the body of the program and not separated 
from program content as children's commercials are required to be.''
    7. In a petition for rulemaking filed with the Commission in 2003, 
Commercial Alert argues that the Commission's sponsorship

[[Page 43196]]

identification rules are inadequate to address embedded advertising 
techniques, and thus, these rules fail to fulfill the Commission's 
mandate under Section 317 of the Communications Act. For example, 
Commercial Alert asserts that ``[t]here was a statement at the end of a 
segment featuring the product placement that [the television program] 
`Big Brother 4 is sponsored by McDonald's.' But there was not a hint 
that embedded plugs within the show were in fact paid ads.'' Commercial 
Alert requests revision to these rules to require disclosure of product 
placement and integration in entertainment programming at the 
beginnings of programs in clear and conspicuous language. Commercial 
Alert also requests that disclosure be made concurrently with any 
product placement and/or integration, asserting that requiring 
disclosure only at the beginning or the end of the program 
disadvantages viewers who might miss the announcement.
    8. In opposition, the Washington Legal Foundation (WLF) and Freedom 
to Advertise Coalition (FAC) both argue that embedded advertising 
techniques are a longstanding fixture of broadcast advertising that 
cause no substantial harm to consumers, that the Commission's existing 
sponsorship identification rules are adequate to regulate them, and 
that a concurrent disclosure requirement would violate the First 
Amendment. WLF argues that the proposed concurrent disclosure would so 
greatly interfere with programming that it would be paramount to a 
governmental ban on product placement. By interfering with both the 
``commercial and dramatic reality of television production,'' asserts 
WLF, a concurrent disclosure requirement would be unconstitutionally 
overbroad. Similarly, FAC argues that a concurrent disclosure 
requirement would so greatly interfere with the ``artistic integrity'' 
of a program that it would ``censor or ban this long standing means of 
commercial speech.'' FAC also asserts that a concurrent disclosure 
requirement lacks a ``strong enough governmental interest'' to justify 
the infringement on commercial speech. Accordingly, applying the four-
part test developed by the U.S. Supreme Court in Central Hudson Gas and 
Electric Corp. v. Public Service Commission, 447 U.S. 557, (1980), FAC 
asserts that any concurrent disclosure requirement would fail to meet 
the intermediate standard of review developed for lawful, non-deceptive 
commercial speech.
    9. Two years after the filing of the Commercial Alert Petition, the 
Writer's Guild of America, West; the Writer's Guild of America, East; 
the Screen Actors Guild; and the associate dean of the U.S.C. Annenberg 
School for Communication formulated another set of recommendations, 
including: (1) Visual and aural disclosure of product integration at 
the beginning of each program; (2) strict limits on product integration 
in children's programming; (3) input by storytellers, actors, and 
directors, arrived at through collective bargaining, about how a 
product or brand is to be integrated into content; and (4) extension of 
all regulation of product integration to cable television. 
Alternatively, these groups requested the creation of an industry code 
on embedded advertising. More recently, in 2007, Philip Rosenthal 
testified on behalf of the Writers Guild of America, West and the 
Screen Actors Guild before the Subcommittee on Telecommunications and 
the Internet of the House Committee on Energy and Commerce regarding 
the need for greater disclosure requirements because of product 
placement and product integration. In addition, in 2007, Patric Verrone 
testified on behalf of the Writers Guild of America, West, during the 
Federal Communications Commission's Public Hearing on Media Ownership 
in Chicago, Illinois regarding the need for greater disclosure 
requirements for product integration.

III. Discussion

    10. We undertake this proceeding in order to consider the complex 
questions involved with the practice of embedded advertising, and to 
examine ways the Commission can advance the statutory goal entrusted to 
us of ensuring that that the public is informed of the sources of 
program sponsorship while concurrently balancing the First Amendment 
and artistic rights of programmers. We seek comment on current trends 
in embedded advertising and the efficacy of the Commission's existing 
sponsorship identification rules in protecting the public's right to be 
informed in light of these trends. More specifically, we seek comment 
on whether and how Sections 73.1212 and 76.1615 of the Commission's 
rules should be amended in order to fulfill the purposes of Sections 
317 and 507 of the Communications Act.
    11. We seek comment on the application of the sponsorship 
identification regulations to various embedded advertising techniques. 
As noted above, the Commission in 1960 issued a public notice stating 
that sponsorship identification requirements applied to ``hidden'' 
commercials embedded in interview programs.\1\ How often are these 
embedded advertising practices occurring and in what form? Are the 
existing rules effective in ensuring that the public is made aware of 
product placement and product integration in entertainment programming? 
Are persons involved in the production or preparation of program matter 
intended for broadcast fulfilling their obligations under Section 507? 
Are broadcasters and cable operators fulfilling their reasonable 
diligence obligations under Section 317(c) and the Commission's rules? 
Does embedded advertising fit within the exception to disclosure 
requirements that applies where the commercial nature and identity of 
the sponsor is obvious? \2\
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    \1\ See Inquiry Into Hidden Commercials In Recorded 
``Interview'' Programs, Public Notice, 40 F.C.C. 81 (1960). In its 
petition, Commercial Alert stresses that more recently, several 
pharmaceutical companies have used paid spokespersons to promote 
certain drugs, ``often without disclosing that they were paid by 
pharmaceutical companies, or had other financial ties to them.'' See 
Commercial Alert Petition at 5.
    \2\ See 47 CFR 73.1212(f).
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    12. We also seek comment on whether modifications to the 
sponsorship identification rules are warranted to address new 
developments in the use of embedded advertising techniques. Are the 
concurrent disclosures requested by Commercial Alert necessary to 
ensure that the public is aware of sponsored messages that are 
integrated into entertainment programming? \3\ Would concurrent 
disclosures be more or less disruptive to radio programming? Are other 
rule modifications warranted? Should we require disclosures before or 
after, or before and after, a program containing integrated sponsored 
material? \4\ Should we require disclosure during a program when 
sponsored products and/or services are being displayed? Should we 
require both visual and aural disclosure for televised announcements? 
\5\ Should these disclosures contain language specifying that the 
content paid for is an ``advertisement'' or other specific

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terms? \6\ Should we require that radio disclosures be of a certain 
duration or of a certain volume?
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    \3\ See Commercial Alert Petition at 4.
    \4\ Id.
    \5\ See Writers Guild White Paper at 8. We note that in a 1991 
Report and Order, the Commission adopted a rule requiring both audio 
and video sponsorship identification for television political 
advertisements. In the matter of Codification of the Commission's 
Political Programming Policies, 7 FCC Rcd 678 (1991). However, as 
part of the same proceeding, in response to petitions for 
reconsideration addressing these requirements, the Commission 
subsequently eliminated the audio identification (agreeing with 
petitioners that this requirement was unduly burdensome to 
candidates, particularly for short spot announcements) and set forth 
the specific standards for video sponsorship identification 
currently in effect. 7 FCC Rcd 1616 (1992).
    \6\ See Commercial Alert Petition at 4.
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    13. We further seek comment on the First Amendment implications of 
possible modifications to the sponsorship identification rules to 
address more effectively embedded advertising techniques. In 
particular, we invite comment on the arguments raised by WLF and FAC in 
response to Commercial Alert's petition. Would the imposition of 
concurrent disclosure requirements or other regulations infringe on the 
artistic integrity of entertainment programming, as WLF argues? Would 
such a regulation be paramount to a ban on embedded advertising, as 
asserted by WLF and FAC? Does the apparently common existing practice 
of superimposing unrelated promotional material at the bottom of the 
screen during a running program belie WLF's and FAC's contention that 
concurrent identification would effectively preclude product 
integration as a form of commercial speech because it would ``infringe 
on artistic integrity''? Are the government interests at stake here 
substantial enough to justify any such requirements? How can the 
Commission ensure that any modified regulations are no more extensive 
than necessary to serve these interests?
    14. We also seek comment on whether Section 317 disclosure 
requirements should apply to feature films containing embedded 
advertising when re-broadcast by a licensee or provided by a cable 
operator. We note that in its prior Order, the Commission granted a 
Section 317 waiver for feature films.\7\ We found that there was a lack 
of evidence of sponsorship within films and observed that there was a 
lag time between production of feature films and their exhibition on 
television. In the 1963 Order, the Commission found no public interest 
considerations which would dictate immediate application of Section 317 
to feature films re-broadcast on television. At present, the 
Commission's rules continue to waive the sponsorship identification 
requirements for feature films ``produced initially and primarily for 
theatre exhibition.'' \8\ We seek comment on the use of embedded 
advertising in feature films today, and whether the Commission should 
revisit the decision to waive Section 317 disclosure requirements.
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    \7\ In the Matter of Amendment of Sections 3.119, 3.289, 3.654 
and 3.789 of the Commission's Rules, Report and Order, 34 F.C.C. 
829, 841 (1963).
    \8\ See 47 CFR 73.1212(h).
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IV. Notice of Proposed Rulemaking

    15. With the exception of sponsored political advertising and 
certain issue advertising, the Commission only requires that the 
announcement occur once during the programming and remain on the screen 
long enough to be read or heard by an average viewer. The sponsorship 
identification announcement must state ``paid for,'' ``sponsored by,'' 
or ``furnished by'' and by whom the consideration was supplied. In this 
Notice of Proposed Rulemaking, we seek comment on a proposed rule 
change to make the current disclosure requirement more obvious to the 
consumer by requiring that sponsorship identification announcements (1) 
have lettering of a particular size and (2) air for a particular amount 
of time. Currently, the sponsoring announcement for any television 
political advertising concerning candidates for public office must have 
lettering equal to or greater than four percent of the vertical picture 
height and air for not less than four seconds. Also, any political 
broadcast matter or broadcast matter involving the discussion of a 
controversial issue of public importance longer than five minutes ``for 
which any film, record, transcription, talent, script, or other 
material or service of any kind is furnished * * * to a station as 
inducement for the broadcasting of such matter'' requires a sponsorship 
identification announcement both at the beginning and the conclusion of 
the broadcast programming containing the announcement. We seek comment 
on whether the Commission should apply similar standards to all 
sponsorship identification announcements and, if so, we seek comment on 
the size of lettering for these announcements and the amount of time 
they should air. We seek suggestions on any other requirements for 
these announcements.
    16. We also invite comment on whether the Commission's existing 
rules and policies governing commercials in children's programming 
adequately vindicate the policy goals underlying the Children's 
Television Act and Sections 317 and 507 with respect to embedded 
advertising in children's programming. If commenters believe that these 
rules and policies do not do so, we invite comment on what additional 
steps the Commission should take to regulate embedded advertising in 
programming directed to children. For example, we note that embedded 
advertising in children's programming would run afoul of our separation 
policy because there would be no bumper between programming content and 
advertising. Should that prohibition be made explicit in our rules?
    17. The Writers Guild of America asks that we extend regulation of 
product integration to cable television. Section 76.1615 of the 
Commission's rules applies to origination cablecasting by a cable 
operator, which is defined as ``programming (exclusive of broadcast 
signals) carried on a cable television system over one or more channels 
and subject to the exclusive control of the cable operator.'' Should 
the Commission take additional steps with respect to sponsorship 
identification announcements required of cable programmers?
    18. We also invite comment on issues raised by radio hosts' 
personal, on-air endorsements of products or services that they may 
have been provided at little or no cost to them. In such circumstances, 
should we presume that an ``exchange'' of consideration for on-air 
mentions of the product or service has occurred, thus triggering the 
obligation to provide a sponsorship announcement? Should we do so in 
all such circumstances or should we limit this presumption to 
situations where other factors enhance the likelihood that an exchange 
of consideration for air time has taken place. In addition, we invite 
comment on the scope of the ``obviousness'' exception to the 
sponsorship announcement requirement. Does that exception apply to 
endorsements or favorable commentary by a radio host that are 
integrated into broadcast programming, i.e., made to sound like they 
are part of a radio host's on-air banter rather than an advertisement?

V. Administrative Matters

    19. Initial Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act, the Commission has prepared an Initial 
Regulatory Flexibility Analysis (IRFA) of the possible significant 
economic impact on a substantial number of small entities of the 
proposals addressed in this Notice of Inquiry and Notice of Proposed 
Rulemaking. Written public comments are requested on the IRFA. These 
comments must be filed in accordance with the same filing deadlines for 
comments on the Notice Inquiry and Notice of Proposed Rulemaking, and 
they should have a separate and distinct heading designating them as 
responses to the IRFA.
    20. Paperwork Reduction Act Analysis. This Notice Inquiry and 
Notice of Proposed Rulemaking contains potential revised information 
collection

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requirements. If the Commission adopts any revised information 
collection requirements, the Commission will publish a notice in the 
Federal Register inviting the public to comment on the requirements, as 
required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 
U.S.C. 3501-3520). In addition, pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4), the Commission seeks specific comment on how it might 
``further reduce the information collection burden for small business 
concerns with fewer than 25 employees.''
    21. Ex Parte Rules. This proceeding will be treated as a ``permit-
but-disclose'' proceeding subject to the ``permit-but-disclose'' 
requirements under section 1.1206(b) of the Commission's rules. Ex 
parte presentations are permissible if disclosed in accordance with 
Commission rules, except during the Sunshine Agenda period when 
presentations, ex parte or otherwise, are generally prohibited. Persons 
making oral ex parte presentations are reminded that a memorandum 
summarizing a presentation must contain a summary of the substance of 
the presentation and not merely a listing of the subjects discussed. 
More than a one-or two-sentence description of the views and arguments 
presented is generally required. Additional rules pertaining to oral 
and written presentations are set forth in section 1.1206(b).
    22. Comment Information. Pursuant to sections 1.415 and 1.419 of 
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may 
file comments September 22, 2008; reply comments are due on or before 
October 22, 2008. Comments may be filed using: (1) The Commission's 
Electronic Comment Filing System (ECFS), (2) the Federal Government's 
eRulemaking Portal, or (3) by filing paper copies. See Electronic 
Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ 
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers 
should follow the instructions provided on the Web site for submitting 
comments.
     For ECFS filers, if multiple docket or rulemaking numbers 
appear in the caption of this proceeding, filers must transmit one 
electronic copy of the comments for each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, 
and the applicable docket or rulemaking number. Parties may also submit 
an electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to [email protected], and include the following 
words in the body of the message, ``get form.'' A sample form and 
directions will be sent in response.
     Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. If more than one 
docket or rulemaking number appears in the caption of this proceeding, 
filers must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail (although we continue to experience delays in receiving U.S. 
Postal Service mail). All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission.
     The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
     U.S. Postal Service first-class, Express, and Priority 
mail should be addressed to 445 12th Street, SW., Washington, DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an e-mail or call the Consumer & 
Governmental Affairs Bureau at 202-418-0530 (voice), 202-418-0432 
(tty).
    Comments, reply comments, and ex parte submissions will be 
available for public inspection during regular business hours in the 
FCC Reference Center, Federal Communications Commission, 445 12th 
Street, SW., CY-A257, Washington, DC 20554. These documents will also 
be available via ECFS. Documents will be available electronically in 
ASCII, Word 97, and/or Adobe Acrobat.
    23. Additional Information. For additional information on this 
proceeding, contact John Norton, [email protected], or Brendan 
Murray, [email protected], of the Media Bureau, Policy Division, 
(202) 418-2120.

Initial Regulatory Flexibility Analysis

    24. As required by the Regulatory Flexibility Act of 1980, as 
amended (the ``RFA''), the Commission has prepared this Initial 
Regulatory Flexibility Analysis (``IRFA'') of the possible significant 
economic impact of the policies and rules proposed in the Notice 
Inquiry and Notice of Proposed Rulemaking on a substantial number of 
small entities. Written public comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments on the Notice Inquiry and Notice of 
Proposed Rulemaking. The Commission will send a copy of the Notice 
Inquiry and Notice of Proposed Rulemaking, including this IRFA, to the 
Chief Counsel for Advocacy of the Small Business Administration 
(``SBA''). In addition, the Notice Inquiry and Notice of Proposed 
Rulemaking and IRFA (or summaries thereof) will be published in the 
Federal Register.
    25. Need for, and Objectives of, the Proposed Rules. Our goal in 
commencing this proceeding is to seek comment on current trends in 
embedded advertising and potential changes to the current sponsorship 
identification regulations with regard to embedded advertising. Given 
the increased prevalence of embedded advertising techniques, it is 
important that sponsorship identification rules protect the public's 
right to know who is paying to air commercials or other program matter 
on broadcast television and radio and cable.
    26. In this Notice Inquiry and Notice of Proposed Rulemaking, we 
seek comment on a proposed rule change to make the current disclosure 
requirement more obvious to the consumer by requiring that sponsorship 
identification announcements (1) have lettering of a particular size 
and (2) air for a particular amount of time, and seek suggestions for 
any other requirements for these announcements. We also invite comment 
on whether the Commission's existing rules and policies governing 
commercials in children's programming adequately vindicate the policy 
goals underlying the Children's Television Act and Sections 317 and 507 
with respect to embedded advertising in children's programming. We also 
ask whether we should take additional steps with respect to sponsorship 
identification announcements required of cable programmers. In 
addition, we

[[Page 43199]]

invite comment on issues raised by radio hosts' personal, on-air 
endorsements of products or services that they may have been provided 
at little or no cost to them: should we presume that an ``exchange'' of 
consideration for on-air mentions of the product or service has 
occurred, thus triggering the obligation to provide a sponsorship 
announcement; and does the ``obviousness'' exception to the sponsorship 
announcement requirement apply to endorsements or favorable commentary 
by a radio host that are integrated into broadcast programming, i.e., 
made to sound like they are part of a radio host's on-air banter rather 
than an advertisement?
    27. Legal Basis. The authority for the action proposed in this 
rulemaking is contained in Sections 4(i) & (j), 303(r), 317, 403, and 
507 of the Communications Act of 1934 as amended, 47 U.S.C. 154(i) & 
(j), 303(r), 303a, 317, 403, and 508.
    28. Description and Estimate of the Number of Small Entities to 
Which the Proposed Rules Will Apply. The RFA directs agencies to 
provide a description of, and where feasible, an estimate of the number 
of small entities that may be affected by the proposed rules, if 
adopted. The RFA generally defines the term ``small entity'' as having 
the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' In addition, 
the term ``small business'' has the same meaning as the term ``small 
business concern'' under the Small Business Act. A ``small business 
concern'' is one which: (1) Is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) satisfies any 
additional criteria established by the Small Business Administration 
(``SBA'').
    29. Television Broadcasting. The Census Bureau defines this 
category as follows: ``This industry comprises establishments primarily 
engaged in broadcasting images together with sound. These 
establishments operate television broadcasting studios and facilities 
for the programming and transmission of programs to the public.'' The 
SBA has created a small business size standard for Television 
Broadcasting entities, which is: such firms having $13 million or less 
in annual receipts. The Commission has estimated the number of licensed 
commercial television stations to be 1,379. In addition, according to 
Commission staff review of the BIA Publications, Inc., Master Access 
Television Analyzer Database (BIA) on March 30, 2007, about 986 of an 
estimated 1,374 commercial television stations (or approximately 72 
percent) had revenues of $13 million or less. We therefore estimate 
that the majority of commercial television broadcasters are small 
entities.
    30. We note, however, that in assessing whether a business concern 
qualifies as small under the above definition, business (control) 
affiliations must be included. Our estimate, therefore, likely 
overstates the number of small entities that might be affected by our 
action, because the revenue figure on which it is based does not 
include or aggregate revenues from affiliated companies. In addition, 
an element of the definition of ``small business'' is that the entity 
not be dominant in its field of operation. We are unable at this time 
to define or quantify the criteria that would establish whether a 
specific television station is dominant in its field of operation. 
Accordingly, the estimate of small businesses to which rules may apply 
does not exclude any television station from the definition of a small 
business on this basis and is therefore possibly over-inclusive to that 
extent.
    31. In addition, the Commission has estimated that number of 
licensed noncommercial educational (NCE) television stations to be 380. 
These stations are non-profit, and therefore considered small entities. 
In addition, there are also 2,295 low power television stations (LPTV). 
Given the nature of this service, we will presume that all LPTV 
licensees qualify as small entities under the above SBA small business 
size standard.
    32. Cable Television Distribution Services. Since 2007, these 
services have been newly defined within the broad economic census 
category of Wired Telecommunications Carriers; that category is defined 
as follows: ``This industry comprises establishments primarily engaged 
in operating and/or providing access to transmission facilities and 
infrastructure that they own and/or lease for the transmission of 
voice, data, text, sound, and video using wired telecommunications 
networks. Transmission facilities may be based on a single technology 
or a combination of technologies.'' The SBA has developed an associated 
small business size standard for this category, and that is: all such 
firms having 1,500 or fewer employees. To gauge small business 
prevalence for these cable services we must, however, use current 
census data that are based on the previous category of Cable and Other 
Program Distribution and its associated size standard; that size 
standard was: all such firms having $13.5 million or less in annual 
receipts. According to Census Bureau data for 2002, there were a total 
of 1,191 firms in this category that operated for the entire year. Of 
this total, 1,087 firms had annual receipts of under $10 million, and 
43 firms had receipts of $10 million or more but less than $25 million. 
Thus, the majority of these cable firms can be considered to be small.
    33. Cable Companies and Systems. The Commission has also developed 
its own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small.
    34. Cable System Operators. The Communications Act of 1934, as 
amended, also contains a size standard for small cable system 
operators, which is ``a cable operator that, directly or through an 
affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' The Commission has determined that an operator serving 
fewer than 677,000 subscribers shall be deemed a small operator, if its 
annual revenues, when combined with the total annual revenues of all 
its affiliates, do not exceed $250 million in the aggregate. Industry 
data indicate that, of 1,076 cable operators nationwide, all but ten 
are small under this size standard. We note that the Commission neither 
requests nor collects information on whether cable system operators are 
affiliated with entities whose gross annual revenues exceed $250 
million, and therefore we are unable to estimate more accurately the 
number of cable system operators that would qualify as small under this 
size standard.
    35. Radio Stations. The proposed rules and policies potentially 
will apply to all AM and commercial FM radio broadcasting licensees and 
potential licensees. The SBA defines a radio broadcasting station that 
has $6.5 million or less in annual receipts as a small business. A 
radio broadcasting station is an establishment primarily engaged in 
broadcasting aural programs

[[Page 43200]]

by radio to the public. Included in this industry are commercial, 
religious, educational, and other radio stations. Radio broadcasting 
stations which primarily are engaged in radio broadcasting and which 
produce radio program materials are similarly included. However, radio 
stations that are separate establishments and are primarily engaged in 
producing radio program material are classified under another NAICS 
number. According to Commission staff review of BIA Publications, Inc. 
Master Access Radio Analyzer Database on March 31, 2005, about 10,840 
(95%) of 11,410 commercial radio stations have revenue of $6.5 million 
or less. We note, however, that many radio stations are affiliated with 
much larger corporations having much higher revenue. Our estimate, 
therefore, likely overstates the number of small entities that might be 
affected by our action.
    36. Description of Projected Reporting, Recordkeeping and Other 
Compliance Requirements. The Notice Inquiry and Notice of Proposed 
Rulemaking does not propose any additional recordkeeping requirements 
but these types of requirements may be suggested by commenters. Some of 
the proposed rules do require additional on-air reporting to the public 
of sponsorship identification, which could result in more sponsorship 
identification announcement requirements for stations/cable systems to 
monitor and for producers to insert into their programming.
    37. Steps Taken to Minimize Significant Economic Impact on Small 
Entities and Significant Alternatives Considered. The RFA requires an 
agency to describe any significant alternatives, specifically small 
business alternatives, that it has considered in reaching its proposed 
approach, which may include the following four alternatives (among 
others): ``(1) The establishment of differing compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities; (2) the clarification, consolidation, or 
simplification of compliance and reporting requirements under the rule 
for such small entities; (3) the use of performance rather than design 
standards; and (4) an exemption from coverage of the rule, or any part 
thereof, for such small entities.''
    38. The proposals in the Notice Inquiry and Notice of Proposed 
Rulemaking would apply equally to large and small entities and we have 
no evidence that the burden of any of our proposals is significantly 
greater for small entities. As noted, some of the proposed rules do 
require additional on-air reporting to the public of sponsorship 
identification, which could result in more sponsorship identification 
announcement requirements for stations/cable systems to monitor and for 
producers to insert into their programming. We anticipate that some 
portion of the cost of compliance with the proposals will fall on 
producers of programming, which are indirectly affected. However, we 
acknowledge that some portion of the cost may fall on stations 
themselves. Accordingly, we welcome comment on modifications of the 
proposals if such modifications might assist small entities and 
especially if such comments are based on evidence of potential economic 
differential impact of the regulations on small entities that might 
have to absorb some of the cost of compliance.
    39. Federal Rules that May Duplicate, overlap, or Conflict with the 
Commission's Proposals. None.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
 [FR Doc. E8-16998 Filed 7-23-08; 8:45 am]
BILLING CODE 6712-01-P