Payola 2: Why it matters

What is the significance of the Payola settlement? Why was this even a legal matter? There are 3 keys to this event:

1) Federal law prohibits broadcasters from accepting secret payments or anything of "substantial value" in exchange for airplay of a specific song; (I’m not sure about airplay of a specific artists). Its clear the broadcasters violated that law;

2) Broadcasters are granted a license to use the public airwaves — there are specific standards they must maintain, in order to maintain that license and keep that privilege (and it is a privilege, not a property right). Anything fraudulent, misrepresentative (even a failuire to disclose) violates FCC governing practices and standards, as well as legislation.  Again, a clear violation;

3) The FCC is the primary agency charged with regulating this, but like so many other Federal regulatory agencies, they have been asleep at the switch. This is a political issue;

This is not like, as has been suggested, supermarkets selling  shelf space to food companies, or Barnes & Noble selling book racks to publishers. That’s because the supermarkets and B&N’s owns their own shelves; They are private property, free to be used as their owners see fit.

The airwaves, on the other and, are the publics’; Broadcasters are merely given a license to use them for the benfeit fo the public. If they can make a buck doing so, that’s all the better — but do not think that Clearchannel or Infinity or any othe broadcaster over the public airwaves has a specific right to dispose of the public’s property at their own discretion.

Here’s a few select quotes from the settlement announcement:

"This is not a pretty picture; what we see is that payola is pervasive," Mr. Spitzer said, using a term from the radio scandals of the 1950’s in describing e-mail messages and corporate documents that his office obtained during a yearlong investigation. "It is omnipresent. It is driving the industry and it is wrong."

The Attorney General’s findings alleges that the illegal payoffs for airplay were designed to manipulate record charts, generate consumer interest in records and increase sales:

"Instead of airing music based on the quality, artistic competition, aesthetic judgments or other judgments, radio stations are airing music because they are paid to do so in a way that hasn’t been disclosed to the public," Spitzer said at a press briefing.

click for larger graphic
Graphic courtesy of NYT


The Washington Post noted: 

"With the recording-industry settlement, Spitzer has again uncovered
widespread wrongdoing in an industry primarily regulated by a federal
agency, in this case the FCC. Previous Spitzer investigations into
misleading stock research in the brokerage industry and abuses in the
mutual fund industry were widely seen as an embarrassment to the
Securities and Exchange Commission, Wall Street’s primary regulator."

The FCC should be similarly embarrassed . . .


UPDATE: July 28, 2005 6:22am

Slate’s Dan Gross asks, What’s Wrong With Payola?


UPDATE: July 29, 2005 5:52 pm

The NY Post observes: Music execs sacrifice the great for the glitz; They go even further than I do, blaming Payola for all lousy music on the Radio:   

It turns out that the monotonous repetition of awful music played on commercial radio stations is largely caused by companies like Sony, the world’s second-largest record label, that regularly paid millions of dollars in under-the-table bribes to radio hosts and producers to get specific songs played over and over, without regard to a tune’s worth or initial popularity.

The select handful of illegally hyped tunes eventually catch on from sheer repetition and sell well, but the overall result has been a tidal wave of mediocrity that causes record sales to drop year after year.

In the category of hip-hop music, industry insiders have long complained that payola bribery has fueled the rise of marginally talented gangsta rappers – who endlessly boast of "keeping it real" even while relying on corporate bribery to purchase airplay and popularity they could never dream of achieving honestly.

It wasn’t always so. Once upon a time in the music business, the key to success was "having ears" – spending long nights haunting bars, nightclubs and juke joints scouting new talent.

The legends in the business were men like the late John Hammond, who exchanged a Yale degree and wealthy pedigree as part of the Vanderbilt family for a life in the Greenwich Village jazz clubs, where he discovered and promoted a 17-year-old unknown named Billie Holiday in the 1930s, along with groups like the Count Basie Band.

Decades later, as a talent scout for Columbia Records, Hammond helped launch the career of another teenager named Aretha Franklin and had the ears to discover folk singers like Pete Seeger and Bob Dylan.

One of Hammond’s last finds before his death in 1987 was a kid from Jersey named Bruce Springsteen.

Clive Davis, another talent scout for Columbia, signed Janis Joplin, Carlos Santana and Billy Joel in the ’60s and ’70s, then formed Arista Records in 1974 and brought us pop giants like Patti Smith and Whitney Houston.

Arista was later bought by Sony, which last year fired 110 Arista workers and folded the label into RCA.

As corporate giants purchased and shut down independent labels, the men with ears have been replaced by lazy, greedy company men who see popular music as nothing more than a commodity to buy, sell and manipulate by any available means.

These payola crooks are denying the rest of us access to the real talent in our land – and breaking the law to boot.


Office of NYS Attorney General Eliot Spitzer
July 25, 2005

Evidence: Internal Industry Pay-for-Play Memos

Discontinuance Order

Radio Payoffs Are Described as Sony Settles
NYT, July 26, 2005

Sony BMG Settles Radio Payola Probe
Firm to Pay $10 Million to End Role in Spitzer’s Ongoing Inquiry
Dean Starkman
Washington Post, Tuesday, July 26, 2005; Page D03

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What's been said:

Discussions found on the web:
  1. Barry Ritholtz commented on Jul 26

    from a reader of Dave Farber’s IP list:

    And at a Federal Communications Bar Lunch just two weeks ago, the new head of the Enforcement Bureau told us that plugola/payola would only be investigated in response to specific complaints, and was not a priority.

    It is fair to note that the EB has its hands full, and
    can’t track down every FCC rule violation out there, but the plugola/payola thing has been a flagarant breach of FCC rules for years now.

    Either enforce them or get rid of them.

  2. brian commented on Jul 26

    Barry, how is payola different from product placement on broadcast tv? When a Friends actress holds up a Coca-Cola can, although we can assume it was paid for, it is never explicitly stated (unlike when sports broadcasters mention this timeout was sponsored by Reebok). The producers get something of value (cash) in exchange for advertisers being able to place their merchandise in the tv content.

  3. Barry Ritholtz commented on Jul 26

    Quite a few differences:

    1) there is no Federal Legislation making Product placement illegal — thats the first issue.

    2) the subsequent reporting by regulated FCC license holders (i.e., radio stations) of false or misleading data about their playlists and spins;

    3) imagine if it wasn’t the product that was placed, but rather, the entire show — indeed, consider some mediocre 2nd rate production being put on instead of Friends (i.e., Joey).

  4. Defenestrator commented on Jan 17

    So, as you see the copyright royalty board now believes the proper means of paying mechanical royalties is “willing buyer-willing seller” Do you change your mind about this? After all, if someone is willing to pay for their records to be played, why should a radio station play music that requires the station to pay the artist to play it?

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