Product Placement–Time-Shifting Causes Ad Shifting

Product placement is an advertising activity which has grown for decades in the motion picture industry, going virtually unnoticed by legislators. When television began aggressively using product placement for advertising, concerns (and regulation) began increasing. Unlike motion pictures, television is legally required to distinguish between advertising and programming.

First, “infomercials” that looked and felt like programming were targeted by regulators, because they believed the infomercials were deceiving. After a number of cases, the industry developed and implemented disclosures to allay fears of regulators at the FCC and the FTC. Enter reality TV. Suddenly programs were using affiliations with sponsors as part of the content or story line, prompting fresh concerns. As cable television, pay-per-view and video-on-demand services, time-shifting and digital recording devices, and fast-forward buttons have become commonplace, advertisers have struggled to capture viewers’ attention with product placement. In 2004, product placement advertising rose to about $4.25 billion.

Why the fuss? Because product placement is advertising, subject to the same laws and regulations that govern commercials. On television, both the FTC and the FCC can regulate advertising, mandate disclosures and determine if something is deceptive or misleading. Where the line between harmless product placement and deceptive practices is drawn is increasingly blurred.

Whether a product placement is deceptive or misleading—sufficient to make it actionable under Section 5 of the FTC Act—depends on whether there is some representation or omission likely to mislead the consumer. The depiction of the product must be viewed from the perspective of a reasonable consumer in the situation and the representation or omission must be “material.” In other words, if the consumer knew or was told the truth, the consumer’s behavior would likely be affected in connection with the product.

The FCC also regulates deceptive product placements: viewers may not realize they are advertisements, hence the FCC requires disclosure. Failure to properly disclose the commercial nature of a product placement could amount to “payola” and would be illegal. Again, where the line is drawn between harmless inclusion of products in programming versus commercialization which misleads consumers is hardly clear.

The FTC and FCC regulations puts advertisers between a rock and a hard place. The FCC requires disclosure for a paid placement—which makes the product placement commercial speech. If it is commercial speech, is the placement then also subject to FTC disclosure rules? What if the advertiser has no control over the creative content and no approval over scripts or editing or even the extent of the product placement itself? Under those circumstances, how could the advertiser be responsible for the depiction of its product; the director, producer, actors, even the editorial staff, have ultimate creative control of what shows up on the screen. The advertiser could pay a substantial sum of money to watch its product wind up on the cutting room floor in post-production. Ouch.

But what if the advertiser seeks approval over content to ensure it gets what it pays for? Can that advertiser argue it shouldn’t be liable for false representations or the net impression created about the product—especially if the advertiser has some say in the creative surrounding a product placement? Does one risk a negative placement by foregoing participation in the creative, or fight to ensure favorable depiction of a product with the corresponding risk that liability will increase with participation in the content and placement.

Ultimately, the question of whether disclosure is required, whether product placement will be seen as misleading or acceptable, will depend on the “reasonable consumer.” Artistic expression of the creators of programming content, or blatant advertisement? In one case no disclosure is necessary. In the other, the law requires disclosure so the consumer is informed. As product placement becomes increasingly clever and interwoven into the fabric of programming content, and as advertisers increasingly participate in creative decisions surrounding placement and depiction of products, the risks of regulatory action increase.

Outside the United States, it doesn’t get any easier. In Ireland and Finland, product placement is prohibited in all media; in Austria, Norway and Italy it is specifically forbidden in television programming; Germany, Greece, Denmark and Liechtenstein allow it if it is integral to editorial content; and the Netherlands allows only product placement that lasts a “few seconds.” Then there is the European Commission Television without Frontiers Directive—but we digress.

Product placement will continue to challenge the balance between advertising and creative programming. Where and when disclosures will be required are likely to challenge advertisers, consumers, regulators and legislators for some time to come.

Thanks to Doug Wood for contributions to the material in this article. If you have any questions or need help with any of the issues, please contact us.