BILL ANALYSIS
AB 2623
Page 1
Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON GOVERNMENTAL ORGANIZATION
Joe Coto, Chair
AB 2623 (Hall) - As Amended: April 15, 2010
SUBJECT : Alcoholic beverages: tied-house restrictions:
advertising.
SUMMARY : Allows specific holders of an alcohol license under
the Alcoholic Beverage Control Act to purchase advertising from
a non-licensee that provides Internet-delivered content for show
on video display devices located on the premises of an on-sale
retail license (such as at a restaurant or bar), subject to
specified restrictions. Specifically, this bill :
1)Provides that the a beer manufacturer, small beer
manufacturer, winegrower, distilled spirits manufacturer,
distilled spirits manufacturer's agent, rectifier, distilled
spirits importer, or beer and wine importer may purchase
advertising from a non-licensee providing Internet-delivered
content and advertising to on-sale retail licensees, provided
all of the following requirements are met:
a) The on-sale Retail licensee is responsible for providing
the video display devices, which may not be sold, rented,
given, or loaned to the on-sale retail licensee by the
non-licensee providing the Internet-delivered content.
b) The on-sale retail licensee receives no monetary payment
directly or indirectly from the beer manufacturer, small
beer manufacturer, winegrower, distilled spirits
manufacturer, distilled spirits manufacturer's agent,
rectifier, distilled spirits importer, or beer and wine
importer purchasing the wine, beer, or distilled spirits
advertising.
c) The on-sale retail licensee has no control over the
content or placement of the Internet-delivered content or
the alcoholic beverage paid advertising.
d) The Internet-delivered content and advertising does not
interfere with regular broadcasts on the video display
devices other than to reduce the size of the picture.
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e) The on-sale retail licensee may provide its own messages
and promotions through the device delivering the
Internet-delivered content.
f) The designated licensee may not make any reference to
the on-sale retail licensee.
g) The designated licensee may specify that its advertising
appear in a particular trading area or type of retail
location, but the designated licensee shall not demand or
receive the right to specify that its advertising appear in
a particular on-sale retail licensee's premises.
h) The designated licensee shall not include in its
advertising instant redeemable coupons or other discounts
contemporaneously usable in the retail premises.
1)Contains "boiler plate" language (legislative findings and
declarations) relative to the necessity of requiring a
separation among manufacturing interests, wholesale interests
and retail interests.
EXISTING LAW :
1)Establishes the State Department of Alcoholic Beverage Control
(ABC) and grants it the exclusive authority to administer the
provisions of the Act in accordance with laws enacted by the
Legislature.
2)States that the "Tied-house" Law or "three-tier" system
separates the alcoholic beverage industry into three component
parts of manufacturer (first tier), wholesaler (second tier),
and retailer (third tier). The original policy rationale for
this body of law was to prohibit the vertical integration of
the alcohol industry and to protect the public from predatory
marketing practices.
3)Provides that any manufacturer, winegrower, manufacturer's
agent, rectifier, distiller, bottler, importer, or wholesaler,
or any officer, director, or agent of any of those persons,
may furnish, give, lend, or rent specified types of signs,
including signs relating to advertising beer, wine, or
distilled spirits, as defined.
4)Provides that any alcohol manufacturer, winegrower, distiller,
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or wholesaler may furnish or rent interior signs advertising
alcoholic beverages for both on and off-sale retail premises,
as specified.
5)The ABC Act generally prohibits a manufacturer, bottler,
importer, or wholesaler of products of the brewing industry
from furnishing, giving, renting, lending, or selling,
directly or indirectly, any equipment, fixtures, or supplies,
other than alcoholic beverages.
6)Permits the holder of a beer and wine wholesaler license, to
manufacture, distribute, and sell certain lawful products
(glasses, shirts, hats, etc.) provided that these products are
sold by the holder of the beer and wine wholesaler's license
to the on-sale beer and wine licensee, at a price no less than
the current market price for the product.
7)Defines an "On-Sale" license as authorizing the sale of all
types of alcoholic beverages namely, beer, wine and distilled
spirits, for consumption on the premises (such as at a
restaurant or bar).
FISCAL EFFECT : Unknown.
COMMENTS :
Purpose of bill : According to the author, this bill will
provide bars and restaurants with a unique, integrated messaging
and entertainment experience for patrons, as well as for
advertisers. AB 2623 will allow specified licensees under the
ABC Act, to purchase advertising from a non-licensee (a business
which is not licensed by ABC) to provide Internet-delivered
content for show on video display devices located on the
premises of on-sale retail licensees, subject to specified
restrictions. The digital media devise used to display the
content may be provided as long as the retail licensee receives
no financial compensation as a result of the advertising and has
no control over the content or placement of the
Internet-delivered content.
The author states that the only benefit the on-sale retail
licensee will receive is the right to provide its own messages
and promotions through the device used to deliverer the
Internet-based content. To address temperance issues, the
on-sale licensee shall not include in its advertising instant
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redeemable coupons or other discounts contemporaneously usable
in the retail premises.
AB 2623 is sponsored by Touch Tunes Interactive Network. Touch
Tunes is not involved in the alcoholic beverage business other
than selling advertising space to the industry in various
states. Touch Tunes has been authorized to operate in bars and
restaurants in 14 states, including Oregon and Washington. In
essence, this bill will make California law consistent with laws
in other states on this matter. Touch Tunes has customers in
San Diego, Los Angeles, Sacramento and San Francisco but at this
time, they do not advertise alcoholic beverages in their
California locations. Under current law, an on-sale licensee
can advertise other types of goods and services through an
Internet-delivered third-party device but not alcohol.
The sponsor of this bill explains that the digital media network
operates by taking a video feed, such as a popular broadcast
shows or sports programs, and frames it with an L-shaped window.
The operating system provides a customized banner where an
on-sale licensee can post messages about food and drink
specials, events at the bar, trivia games that patrons
participate in via cell phone text messaging. The banner can be
updated and/or changed by using a Web interface. In addition,
one side of the video display is used for advertising goods and
services. The sponsor states that the benefits of using
Internet-delivered content and advertising at bars and
restaurants will be increased revenue, communication with
patrons, enhance a customer's viewing experience, build customer
loyalty and repeat business, and it's free.
Touch Tunes states, "this bill does not allow dominance by a
single producer in the marketplace. In fact, AB 2623 will
encourage competition. In those states where Touch Tunes has
been authorized, it has enhanced competition in the market place
by providing cost effective advertising to small and large
alcoholic beverage manufacturers. This includes brands like
Shiner Bock and Tullamore Dew, as well as major brands like
Budweiser and Miller."
Background : As noted above, the tied-house laws, developed
after Prohibition, sought to break up and separate the liquor
industry by categorizing and regulating each aspect of the
business. It is essentially divided into manufacturing,
wholesaling, and retailing. The term "tied-house" refers to a
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practice which was common in this country prior to prohibition,
and that is still used in England today, where a bar or "public
house" was tied to the products of a particular manufacturer.
The original rationale for tied-house restrictions was to
promote the state's interest in maintaining an orderly market,
to prohibit the vertical integration of the alcohol industry, to
protect the public from predatory marketing practices, and to
prevent the intemperate consumption of alcoholic beverages.
The tied-house restrictions prohibit the furnishing or selling
of supplies as a means of avoiding undue influence and unfair
trade practices. A number of tied-house restrictions and
exemptions have been chaptered in recent years in those specific
instances where the Legislature determined that the public's
interests were protected. Current law generally prohibits the
furnishing, giving, renting, lending, or selling, either
directly or indirectly, of any equipment, fixtures, or supplies,
other than alcoholic beverages as specified. A wholesaler or
manufacturer may give a retailer a sign provided the sign is for
interior use only and it bears conspicuous notice of the
manufacturer's name, brand name, trademarks, or other symbol
associated with the manufacturer and does not advertise the
retailer's name or business. In addition, a sign advertising
wine or distilled spirits in on-sale premises may not exceed 630
square inches. Historically, this prohibition had not applied
where the owner of a venue is not the alcoholic beverage
licensee.
ABC Industry Advisory : The position of ABC on multi-media
changed on this subject as a result of Business and Professions
Code Section 25503(h) and a recent Court of Appeals decision
( Schieffelin & Somerset ) upholding ABC's discipline of several
suppliers for violating tied-house laws.
In February 2009, ABC issued an Industry Advisory stating that
the purpose of the advisory was to remind alcoholic beverage
suppliers and retailers that it's a violation of current law
"for a supplier to pay money, or to give or furnish anything of
value, for the privilege of placing or painting a sign or
advertisement, or window display, on or in premises selling
alcoholic beverages at retail. The prohibition applies both
directly and indirectly. Therefore, any alcoholic beverage
supplier who pays a fee, or provides any other thing of value,
to a multi-media company for the privilege of having its brand
advertising placed on or in retail-licensed premises is in
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violation of the ABC Act."
ABC further stated, "the giving or furnishing to on-sale
retailers of video or other types of equipment or programming
that includes alcoholic beverage advertising violates current
law. Current law also provides a similar prohibition involving
off-sale retailers. Retailers who solicit or accept signs,
advertisements, monetary payments or other things of value under
prohibited conditions can face disciplinary action to the same
extent as suppliers." ABC also stated that the prohibitions
apply regardless of whether the equipment or programming is
provided directly by the supplier or indirectly through a
third-party promotion or multi-media company.
In opposition : The California Beer and Beverage Distributors
(CBBD) has expressed opposition to this measure because it would
permit beer distributors (beer and wine importers) to provide
custom advertising on retailers' televisions in violation of
Tied-house laws that prohibit giving things of value. CBBD
states, "The drafters of the tied-house provisions believed that
if manufacturers and wholesalers were allowed to gain influence
through economic means over retail establishments, they would
then use that influence to obtain preferential treatment for
their products, leading to the exclusion of, or less favorable
treatment of, competing brands."
CBBD points out that AB 2623 is in direct conflict with current
law that prohibits indirect payments from suppliers to retailers
and prohibits a non-retail licensee from paying money or giving
anything of value for the privilege of placing signage on or in
any premises selling alcoholic beverages at retail.
Furthermore, CBBD states that the passage of this measure would
result in indirect payments by suppliers that would provide
value to retail licensees that will result in the promotion of
products of those suppliers who are willing to pay for
advertising sold by Touch Tunes. According to the sponsor's
website, Touch Tunes Barfly "enhances the bar experience by
converting existing televisions into cool, interactive digital
entertainment systems that display custom bar messages,
entertainment and media. The broad range of interactive content
is designed to keep patrons engaged and entertained so they
stay, play, and spend more money ?"
Policy consideration : To strengthen the intent of this measure,
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the author might want to consider the following amendments: 1)
require the party providing the Internet-delivered content to
secure a permit from ABC; 2) add language making it clear that
licensed wholesalers are not required or allowed to participate
in the Internet-delivered advertising content or to pay for any
part of the advertising i.e., Internet connection, etc.; 3)
specify that any violation would subject the licensee to a fine
equal to the total cost of the advertising, plus an undetermined
amount; 4) clarify this bill would not permit the purchasing of
advertising on behalf of the on-sale retailer by a manufacturer;
and, 5) clarify that any on-sale retailer who participates must
sell brands of alcohol beyond those that purchased advertising
on the video display devices located in their establishment.
Prior legislation : AB 2294 (Plescia) of 2007-2008 Regular
Session. Would have allowed any person that is not a licensee
under the Act may furnish, give, lend, or rent video display
devices, as defined, to on-sale retail licensees, subject to
specified restrictions. (Died on Assembly Appropriations
Committee Suspense File)
AB 395 (Briggs), Chapter 207, Statutes of 2001, provides that
interior signs advertising beer that are provided to on or
off-sale retail establishments remain the property of the beer
wholesaler who authorized and furnished the signs, unless given
or sold to the licensee.
AB 973 (Papan), Chapter 26, Statutes of 1997, clarifies the type
of alcohol advertising signs manufacturers and wholesalers may
provide retail licensees, with interior signs advertising beer,
bearing conspicuous notice of the beer manufacturer's name and
other information identifying the beer manufacturer's name or
product as specified.
REGISTERED SUPPORT / OPPOSITION :
Support
The Pelican Group
Touchtunes Interactive Network
Opposition
California Beer and Beverage Distributors
AB 2623
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Analysis Prepared by : Eric Johnson / G. O. / (916) 319-2531