A Closer Look at Multi-Million Dollar Proposed Fines for Program-Length Commercials in Children’s Television

We kicked off our summary of last week’s regulatory actions for broadcasters with the news of several millions of dollars in fines imposed on over 100 television stations for apparent “program-length commercials” in children’s programming.  Last week’s Notice of Apparent Liability, a unanimous decision by all four FCC Commissioners, stemmed from a Hot Wheels Super Ultimate Garage ad that was aired a total of 11 times during a Team Hot Wheels TV program which ran 8 times during November and December of 2018.  The same programming was provided by Sinclair Broadcast Group to both commonly owned stations and stations owned by other companies.  Two years ago, the same program was the subject of a $20,000 fine on a station in Baltimore, apparently when the issue was first discovered and reported to the FCC (see our article about that fine here).  Given the number of stations on which the proposed fines were imposed last week, and the number of issues discussed in the Notice, we thought that we should give the Notice a more extensive look.

First, it is worth discussing the FCC’s concerns with what they term “program-length commercials.”  The Commission has, for almost 30 years, had a policy against “program-length commercials” – programs that feature characters who are also featured in a commercial that runs during the program.  The FCC has been concerned that children may not perceive the difference between a program and a commercial that runs in that program if both feature the same characters.  The entire program can be perceived as a commercial for the product.  If the whole program is perceived as promoting the product, then the program would exceed the commercial limits in children’s programming as set by Congress and incorporated in Section 73.670 of the rules – 10.5 minutes per hour on weekends and 12 minutes per hour on weekdays.

A decade ago, program-length commercials were a significant issue and the subject of many FCC fines.  On one day in 2010, the FCC issued seven Notices of Apparent Liability, seeking fines of as much as $70,000 for these violations (see our article here).  Even before that, we noted how stations can inadvertently find themselves in these situations when featured characters unexpectedly pop up in commercials for products other than those that are directly for products featuring those characters.  So, where a cartoon character appears on an ad for a video game, that can make the entire program a commercial – even though the broadcaster may not have realized until after the fact that the character would be featured in the video game commercial.  These cases emphasize the care that TV broadcasters need to exert to ensure that nothing is aired that could make a program into a program-length commercial.

The Commission considers these program-length commercials to be more serious than a simple overage above the limits for commercial matter in children’s programs, as the commercial featuring a character from the show makes the whole program, in the Commission’s eyes, into one big commercial.  That means that the program is considered a 30-minute commercial, thus far exceeding the limits imposed by the rule.  Because of the FCC’s perception that these are serious matters and because they persisted over multiple airings of the program over more than a month, the base fine of $8,000 that would apply to a simple overage above the commercial limits was significantly increased in last week’s decision.  The failure of the stations to catch the violations was, in the FCC’s view, evidence that the stations did not have an effective compliance plan in place.  Thus, single-station owners were fined $20,000 each for the violation.

Nexstar Broadcasting’s stations were fined $26,000 per station for the same reasons, with the fines increased even higher because, according to the Notice, Nexstar is “a large, publicly traded company with significant revenue comparable to that of Sinclair. As we have previously noted and ‘as Congress has stated, for a forfeiture to be an effective deterrent . . . [it] must be issued at a high level . . . to guarantee that forfeitures issued against large or highly profitable entities are not considered merely an affordable cost of doing business.’”

Sinclair’s per-station fines were even higher, $32,000 for each station that had aired the program all 8 times.  The per-station “upward adjustment” was justified for the same reason as the adjustments for Nexstar, plus a further upward adjustment to due to Sinclair’s prior history of FCC penalties and admonitions for the same type of violation over the last 17 years.  In light of these past violations, the FCC saw the failure to catch the problem as even more significant.  The fines imposed on Sinclair totaled $2,652,000.

There were several other issues worth noting in the Notice issued last week.  The FCC rejected arguments from the non-Sinclair stations that they should have lessened responsibility because the commercials came embedded in the programming delivered to them by Sinclair – the stations had no control over their insertion.  The Commission rejected that argument, finding that each station has the responsibility to ensure that the programming it broadcasts meets FCC rules.

On a few of the stations, the programming ran on a digital subchannel rather than on the station’s main channel.  The FCC noted that in 2004 it made clear that digital multicast streams (free or paid) were subject to the same children’s television rules as the main program stream, and thus the violations counted just as much as if they had been on a primary stream.

The Commission also said that, in computing the proposed fines, the base fine was adjusted upward based on the factors described above.  The decision suggests that the Commission could have imposed the base fine for each time the program aired on each station with the related commercial but, based on past precedent, it decided not to do so.  However, the decision contained a warning to:

broadcast television licensees, satellite providers, and cable operators that the Commission may revise our approach to forfeiture calculations under the Children’s Television Act in future cases. Assessing forfeitures on a per-violation basis is supported by the language of the statute as well as the text of our rules setting forth base forfeiture amounts, and that approach also would reflect the fact that the regulations are of long standing and so should be well understood by television broadcasters, satellite providers, and cable operators.

Broadcasters – take note – you have been warned!

Finally, the FCC noted that, while most of the stations covered by the Notice had reported the overages in their license renewal applications, some television stations had not done so and had instead certified that they were in compliance with the commercial limits on children’s television programming.  As to these stations, the FCC stated: “We will address any licensee non-compliance with our renewal reporting and certification requirements separately when reviewing the renewal application.”  So these stations may face further scrutiny based on these program-length commercials.

The Notice should serve as a clear warning to television broadcasters that the commercial limits in programming directed to children 12 and under must be carefully observed, and that stations need to be monitoring all programming that they broadcast to ensure that it meets these limits.  The fines can be large, and the Notice warns that they may be even larger in the future, so be vigilant in FCC compliance in children’s programming.

Courtesy Broadcast Law Blog