06 Aug 2007

Product placement: it's subtle, it's powerful, but is it legal?

by Cameron Gascoyne

There is little direct regulation of product placement in Australia. But product placement advertising needs to comply with consumer protection laws, just like any other form of advertising.

A small wrinkled alien is lured inside a suburban house with a trail of sweets, leading to a warm, loving relationship with the human occupants.

Twenty-five years on, the candy trail in E.T.: The Extra-Terrestrial remains the classic example of product placement, which is the placement of a sponsored product or brand into entertainment content. E.T.'s favourite food, Reese's Pieces, enjoyed an estimated 60 percent surge in sales following the release of the movie, showing the power of a canny product placement.

Unlike traditional television commercials, product placement advertisements can't be avoided by channel surfing or technology that skips or filters out commercial breaks. As a result, it has been described as surreptitious, covert and deceptive. It is actually illegal in many European countries. Even in the United States, where product placement advertising is permitted, it must be disclosed if money changed hands. In contrast, product placement advertising in Australia is relatively unregulated.

In this article, we'll look at what regulation there is, and how advertisers can comply.

Specific prohibitions and controls

There are a few specific prohibitions and controls on product placement advertising in Australia. Product placement advertising for cigarettes and tobacco is prohibited in virtually every form of media. The ACT and NT have payola laws which make it a criminal offence to accept cash for comment. In other States and Territories, commercial arrangements between presenters of radio current affairs programs and their sponsors are permitted, but must be disclosed. This leaves a broad scope of product placement advertising that is permitted and does not have to be disclosed.

Consumer protection laws - do they apply?

Advertisers engaging in product placement advertising will need to comply with consumer protection laws, just as they would for any other form of advertising. For example, if a business' advertising is misleading and deceptive then it will breach the Trade Practices Act. Just how Australian consumer protections laws will apply to product placement advertising is yet to be seen, as there have been no cases.

There are, however, two practical reasons why product placement advertising is less likely to be misleading and deceptive than traditional forms of advertising.

  • First, product placement advertisements rarely make claims about the value, performance or other attributes of a product. In contrast to traditional advertising, product placement advertising usually involves a brand or product blending seamlessly into the scene, perhaps being used, worn or driven, but not being the subject of direct discussion. This makes it less likely that representations will be made that mislead and deceive consumers.
  • Secondly, if the product placement occurs in a fictional setting then it will be hard to prove that a reasonable person would believe any representations that are actually made. Imagine being asked in cross-examination: "So you watched James Bond in The World Is Not Enough, and then bought a BMW Z8 roadster genuinely believing that it came with remote control driving capabilities and a hidden rocket-firing system?"

What about industry codes?

Some industries have their own voluntary advertising codes of conduct, such as alcoholic beverages, motor vehicles, therapeutic goods and weight loss products and services. It's unclear however whether those codes apply to product placement advertising.

Most codes contain a definition of "advertisement" that is broad enough to include product placement advertising, yet the codes seem to be aimed at more traditional forms of advertising. As an example, the Voluntary Code of Practice for Motor Vehicle Advertising requires advertisers to ensure that advertisements for motor vehicles do not portray speeding or other forms of unsafe driving that would breach the law. This could rule out product placement advertising for motor vehicles in many TV programs and films.

There is also the practical issue of how advertisers can comply with the requirements of an advertising code if they do not control the script, production or editing of the program in which their product appears.

The commonsense view would seem to be that product placements are not covered by the codes of conduct, except perhaps in exceptional circumstances where the product placement is more like a traditional advertisement.

Australian commercial television stations also abide by a self-imposed code of conduct covering a range of advertising and other television content issues. The code requires disclosure of commercial product placement arrangements in documentary, current affairs and other factual programs. The disclosure can be made during the program or in the closing credits. It doesn't deal specifically with product placement advertising in other types of TV programs or films although, like other advertising codes, it has a broad definition of "advertisement" and so might apply in some circumstances.

Current risks - and future regulation

As we've seen, there are a few specific prohibitions and controls, but in most cases product placement advertising in Australia does not have to be disclosed. It is also not clear whether the various voluntary codes of conduct that apply to traditional forms of advertising apply to product placement advertising. Marketers will still need to ensure their product placement advertising is not misleading or deceptive, but often the risks associated with this will be low.

Whether it stays that way in the future is another matter. The rise in childhood obesity has led to a push for regulation of fast-food product placement advertising in content aimed at children. We might see some regulation to address specific areas of concern such as this.

Overseas, active consumer groups in the US have been calling for more stringent disclosure requirements for product placement advertising. Likewise, Europe is looking at allowing limited product placement under strict rules which would require disclosure of commercial product placement arrangements before and at the end of programs, and before the next commercial break.

Whether Australia will follow their lead is unclear. There doesn't seem to be the same level of concern or lobbying here, even though our disclosure requirements are less stringent than the existing requirements in the United States. In fact, since the "cash for comment" furore a few years ago, product placement advertising seems to have been off the regulatory agenda, which is a good thing for advertisers. Existing consumer protection laws ensure we have a minimum level of protection, and existing codes and standards provide guidance for advertisers, even if they don't squarely address the issue.

(Neither the author nor Clayton Utz received any payment for any of the products or services mentioned in this article!)

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.