[ Text Version | WordPerfect Version ]

Statement of Harold Furchtgott-Roth
Commissioner, Federal Communications Commission
before the Direct Marketing Association
May 13, 1998
Washington, DC

It is a pleasure to be here today before the Direct Marketing Association.

It is a hard position to be in today.

People in direct marketing know how to speak well and convincingly. You know a good presentation when you hear it, and you know a bad presentation.

Your expectations are high. I am not talking to a group of economists at the American Economics Association.

And I have to be careful about what I say to y'all. As I was getting dressed this morning, my wife made me change my tie because she said that she did not want us to get a lot of direct advertising for neckties because I was wearing the wrong tie today.

I love direct marketing by phone. I keep waiting for another long-distance phone company to offer me money to switch.

Advertising in general, and direct marketing in particular, are great American institutions. They define this country.

If you look at the myths and legends and fairy tales of other countries, success is ultimately described by becoming a prince or princess and living happily ever after. Other countries have had inherent inequality. There was pecking order in society, and you were born into a certain station in life. Only by miracles and fairy tales do people move up in the pecking order. No matter how hard you tried, your station in life was assigned; so why try very hard?

America is different. It is not just the land of opportunity but of equality. And the two are inextricably interlinked. One is necesary for the other. And both are inherent in our Constitution. Individual rights from an oppressive. No aristocracy or titles.

American tales are not based on royalty or promotion by marriage. They are based on hard work and ingenuity. On personal charm and integrity. Rags to riches is a universal dream.

In America, it is a dream that happens.

In America, it is a dream that happens to common people. Not because they marry rich or or find a long lost aristocratic relative. But because in America, common people are rewarded for uncommon efforts, uncommon investments, and uncommon innovations.

And how do we do that better than common folks in other countries?

In large part, because we have freedom of speech. Freedom of speech that has guided our nation. Freedom of speech that has allowed efforts to flourish. Freedom of speech that has allowed investments to flourish. Freedom of speech that has allowed innovations to flourish.

And direct marketing is simply one of the highest and most refined forms of speech. It is targeted speech with a purpose. Targeted to find the right audience. Targeted to get across the right message. Targeted to make people happy.

Everyone dreams of being the next Horatio Alger. The next Michael Jordan or Tiger Woods. These men have enormous athletic talent, but the vast majority of their wealth comes not directly from athletic winnings but indirectly from the marketing of their name and images.

I am sure that everyone in this room has had experiences with marketing. Marketing the old-fashioned way. Door-to-door.

The door-to-door salesman is an American icon. A lot of great Americans got their start in door-to-door sales.

Billy Graham was one of the greatest Fuller brush salesmen of all times. A cynic would say that a great salesman can become a great salesman. But they have the causality wrong. The causality flows the other way. Rather, a Man of God can become a great salesman.

I also got my start in door-to-door sales by accident.

When I was 7 years old, I was playing with a friend when his father asked us to distribute some political bumper stickers around the neighborhood. Neither of us knew anything about politics, but I could tell that these were mighty fine bumper stickers. Surely, we were not simply supposed to give them away.

I asked my friend, "When you go to a store, they don't just give you candy, do they?"


We started out at what we thought was a wealthy house, and we rang the doorbell. An elderly gentleman came to the door. It was clear he wanted one of the bumper stickers. I looked at my friend and said that it would be a dime, an enormous amount of money to me at the time.

He hollered at us: "What is the money going for?"

I didn't know. I didn't know if we were raising money for charity. I didn't know if we were raising money for a political campaign. All I knew was that I wasn't simply supposed to give away this bumper sticker. I looked at my friend. And then in a moment of inspiration, I looked at the man and said in as serious a tone as a 7-year old could muster: "A worthy cause."

We collected our dime and went around the neighborhood merrily selling bumper stickers, until we came to a house where a man screamed at us. He was obviously on the campaign. He seemed upset that we had been selling the bumper stickers when we were supposed to be giving them away.

America is a great country. It perhaps only here that there is a market for political bumper stickers, and it is perhaps only here that there are 7-year-old entrepeneurs to meet that market demand.

I went on to a childhood career of mowing lawns and paper routes. Of selling through the neighborhood the usual mix of goods and services for high school fundraisers. Each involved marketing.

Door-to-door sales is a marketing approach used by the little fellow. By the new competitor. By the fellows in the rags-to-riches stories. Well-heeled companies don't bother. They have better, more expensive ways of reaching customers.

Door-to-door sales is painful. You knock on a hundred doors full well knowing that no more than one or two may be receptive to your offer. It can be discouraging. But you wait for the magic moment. The experience of every door-to-door salesman is the same. Your feet ache; your resolve is tested. There must be a better more efficient way of doing this.

There is. It is called direct marketing. Whether by mail or phone or internet there are ways of reaching targeted audiences.

Just as a salesman has as much a reasonable right as a neighbor or anyone to knock on your door, so too does a marketer have the reasonable right to call you up or send you an electronic message.

It is all part of free speech.

Or is it?

There are some in government who would like to restrict commercial speech. Who would like to make it a little bit harder to do direct marketing by phone, computer, television, or other media.

Some actions are unintentional, such as raising universal service taxes that keep long-distance rates artificially high. These high taxes make direct marketing more expensive, but direct marketing is not the specific target.

Other actions, such as restrictive CPNI regulations, are directly aimed at direct marketing. Consumer privacy must be balanced against consumer welfare. Antislamming measures must target bad actors and not destroy the value consumers receive from legitimate offers. At the end of the day, I want to be able to receive offers for legitimate higher-quality, lower-priced services without government censorship.

There are cynics in our society who would assert that advertising is a necessary evil in our society.

I disagree. It is rather a necessary good.

It informs consumers.

About new products and services.

And it reminds them about familiar ones.

It offers a means for new businesses to attract new customers.

And a means for current businesses to retain customers.

Advertising and direct marketing are ultimately about people. About informing them. About persuading them. About expectations. About meeting wants. About conveying a sense of trust.

Americans love advertising and marketing. My favorite example is not the subtle refined example of professional advertising found in the mass media.

Rather it is the unrefined free-for-all that you find at a county fair.

People walk mesmerized through a sea of beckoning messages. Sound and sight, smell and taste, pictures and words, combine to beckon people this way and that. Sense and sensibility, folly and frivolity sit next to each other. The Kiwanis Club has a booth next to the Hoochie-Koochie show; the farmer's pig exhibit is next to the two-headed freak show; the hall of mirrors is next to the PTA booth, and so on.

Hawkers at a county fair are some of the best marketers on earth. They can size up each passing person and change their pitch.

Some people know where they are going; some don't. Some want to be seduced by a fantasy world; some don't.

There are not necessarily hard and formal rules for advertising and marketing at a county fair. It is a free for all. Yet every one knows that, and everyone has a finds what they want. Despite the chaos, people trust the system. Left to their own devices, reasonable people will work things out--and they do. There is no need for the government to intervene, and the government does not.

Historically, commercial speech has ranked relatively low on the scale of First Amendment values. It was not until 1976 that the Supreme Court even protected commercial speech.

But when it did so, it rejected what it called the "highly paternalistic" view that government should shield consumers from information that might encourage imprudent -- but lawful -- behavior. Instead, it opted for "the alternative" --

"to assume that information is not in itself harmful, that people will perceive their own best interest if only they are well enough informed, and that the best means to that end is to open the channels of communication rather than close them."

Virginia Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 770 (1976).

But even then, commercial speech was not given full status under the First Amendment. Instead, it was afforded an intermediate level of protection, short of that granted to "political" speech.

Two years ago, however, all that started to change. In a landmark case, 44 Liquormart v. Rhode Island, the Supreme Court took a more protective stance toward commercial speech than it ever has in striking down a state law banning advertising of retail liquor prices.

The Court recognized the historical importance of advertising to the American traditions of free speech and free press. It wrote:

"Advertising has been a part of our culture throughout our history. Even in colonial days, the public relied on 'commercial speech' for vital information about the market . . . . Indeed, commercial messages played such a central role in public life prior to the Founding that Benjamin Franklin authored his early defense of a free press in support of his decision to print, of all things, an advertisement for voyages to Barbados."

116 S. Ct.1495, 1504 (1996).

The Court also affirmed the principle that we should be "especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good."

Justice Thomas would have done even more to protect commercial speech. He wrote that he would give commercial speech full First Amendment protection, writing that there was no "philosophical or historical basis for asserting that 'commercial' speech is of 'lower value' than 'noncommercial' speech." He noted the "near impossibility of severing 'commercial' speech from speech necessary to democratic decisionmaking," observing that "unless consumers are kept informed about the operations of the free market system, they cannot form 'intelligent opinions as to how that system ought to be regulated or altered.'"

The bottom line is that in 44 Liquormart the Court essentially held that truthful, non-misleading advertising about lawful activity can not be prohibited under the First Amendment.

This decision has a direct impact on several issues now bubbling up at the Commission.

First, it casts doubt upon the constitutionality of a federal law that authorizes the FCC to regulate broadcast advertising about lotteries and other "games of chance." Under FCC regulations, casinos are flatly prohibited from advertising their gambling amenities (though they can talk about food and lodging) and may not use the word "casino" except in connection with the legal name of their establishment.

The Court of Appeals for the Ninth Circuit has already ruled that this ban violates the First Amendment. Valley Broadcasting Co. v. United States. The Fifth Circuit, on the other hand, has reached the opposite conclusion.

In all likelihood,the Supreme Court will address this split of opinion, and its decision will have a great impact on the ability of advertisers to freely communicate information about legal activity. (The FCC has voluntarily stayed its enforcement of the rule in the Ninth Circuit.)

Second, 44 Liquormart casts substantial doubt on any effort the FCC might undertake to prohibit alcohol advertising. If Rhode Island could not outlaw advertising about the price of liquor, how could the FCC prohibit advertising about alcohol?

Perhaps one could come up with distinctions between hard liquor on the one hand and beer and wine on the other, but that is a hard distinction to make, especially for purposes of the Constitution. Others have suggested that something less than a blanket prohibition might be constitutional, but that would surely be an uphill legal battle.

In addition to the constitutional issues, protecting advertising and direct marketing is just plain good policy. Direct marketing plays a critical role in our free enterprise system. It works hand-in-hand with industry to promote the sale of the goods and services that industry produces. All in all, consumers are better off when they have more information about goods -- who is selling them and at what price -- rather than less. Information is what makes consumer choice real.

As John Calfee, a Resident Scholar at the American Enterprise Institute has explained, "governments that restrict advertising will only raise prices, sustain monopolies, freeze markets, deny consumers information and generally harm their own interests." Fear of Persuasion (AEI 1997).

Attacks of advertising and direct marketing not only offend the First Amendment, they also offend our national sense of equality and opportunity. Restricting commercial and other speech implicitly leaves the status quo in place. It harms newcomers who seek to enter the market. It harms incumbents who seek to strengthen their position in the market.

Ultimately, free speech and free commercial speech are the great equalizers in a nation where ideas and not heredity matter. And that nation is America. It is here that common people succeed with uncommon efforts, with uncommon investments, with uncommon innovations. Free speech, unfettered commercial speech, and unencumbered direct marketing are necessary tools for mere citizens. With them, they have the opportunity to be as powerful as the greatest of royalty. Without them, they are like people around the world, cursed into a hereditary birth order.

As the Supreme Court has recognized, advertising played an essential part in the development of a free press in America, and therefore deserves constitutional protection. It has also contributed in immeasurable ways to the creation of the greatest and strongest economy in the world. We would be wise to regulate it with restraint.