Spitzer and Payola – the Two Most Feared Words in US Broadcasting
Philip M. Stone October 25, 2004
If there is one word that scares the US broadcast business more than any other it is probably “Payola”. If there is one name to scare any major US industry it is “Spitzer”. Now use both words in the same sentence -- New York Attorney General Eliot Spitzer is investigating whether payola is again rampant on US radio -- and it is no wonder that music and broadcast executives on both sides of the Atlantic are extremely nervous.
EMI, the world’s third largest music company, has confirmed it has received a subpoena dealing with whether music companies are using independent middlemen to pay for radio stations to play their music – a version of payola.
Other music companies, said to include Warner Music Group, Sony BMG Music Entertainment, and Universal Music Group have refused any comment. EMI said it is “fully cooperating” with Spitzer’s inquiry.
Payola – paying to get music played -- is a serious crime in the US, but in most European countries it is an every day fact of life, much of it taking place at senior manager levels rather than the local DJ. For some radio stations, the money from record promoters represents a serious revenue stream.
The European music industry fears Spitzer’s probe, which touches European companies like EMI and BMG, might move the EU to investigating their cozy and less than transparent relationship with broadcasters. DG Internal Markets has long had its eyes on cartels of all kinds. National laws imposing music quotas on broadcasters are seen as a boon for the music business.
For an artist and recording company success in the US means global fame as well as millions of dollars. Getting airplay is the single most important route to getting known. If a radio station plays the same track more than 100 times during a week is that because the track is so great, or is there another incentive?
Payola has its US judicial roots in 1960 when Congress had shown the world in public testimony how television quiz shows were rigged (not illegal but a violation of the public trust -- remember the $64,000 Question where contestants were given answers to the questions in advance?). Having dealt with television’s morality, it was now radio’s turn.
A House subcommittee soon discovered that some of the most famous disc jockeys in America were accepting money from record companies to play specific music tracks. Since most of this music in those days was the new rock n’ roll, this was a direct attack on the ears of those who listened to that music the most – teenagers. Nothing like corruption of the young to get the US Congress on the move!
Payola was outlawed, punishable by a $10,000 fine and a year’s imprisonment. Since 1960 Congress has approved dozens of regulations to strictly govern the record company/radio station relationship. Payola was thought to be dead.
But Spitzer’s investigation centers on a loophole in those regulations. What if the record company itself was not paying money to get tracks aired, but rather they paid independent promoters to get their tracks played, and if money changed hands between the independent promoter and the radio station well, that’s nothing to do with the record company.
Several large US broadcast groups have said in the past they do not deal with independent promoters. EMI said in a statement that it has “a long-standing strict written policy prohibiting unlawful radio promotion exercises.”
This is not the first time Spitzer has challenged the music industry. Earlier this year music companies agreed to distribute some $50 million in royalties to thousands of artists they said they could not find – including hard-to-find Dolly Parton and David Bowie.
Trivia: The word “Payola” is taken from two words: Pay and Victrola. Remember the old RCA Victrola which used the sitting dog and the record player as its brand logo?
ftm Follow Up & Comments
Four American Broadcast Companies Settle With US Regulator For $12.5 million Fine - April 16, 2007
The Federal Communications Commission says it reached settlement with four of the US’ largest radio companies for alleged payola violations although the companies involved did not admit any wrong doing.
The radio companies – Clear Channel Communications Inc., CBS Radio, Entercom Communications, and Citadel Broadcasting Corp. – agreed to pay a $12.5 million fine, and also agreed their 1,653 stations won’t engage in payola.
The also accepted a separate agreement with the American Association of Independent Music to provide 8,400 half-hour programs of free airtime featuring independent music labels and independent artists.
CBS had previously agreed to a consent decree reached with former New York Attorney General Eliot Spitzer, now governor of New York state.
Sony BMG Pays $10 million To Settle Payola Investigation - July 25, 2005
US State of New York Attorney General Eliot Spitzer has announced the first settlement of his investigation into renewed payola in the US music business with Sony BMG, the world’s second largest music company owned 50-50 by Sony and Bertelsman, admitting it had participated in “improper conduct” and promising to appoint a compliance officer to ensure it doesn’t occur again.
Spitzer is said to still be investigating three other music companies, Universal Music Group, the world’s largest; EMI Group, plc, and Warner Music Group. He is also questioning various US radio groups.
Spitzer told a New York news conference, “Our investigation shows that, contrary to listener expectations that songs are selected for airplay based on artistic merit and popularity, air time is often determined by undisclosed payoffs to radio stations and their employees.”
Record companies are forbidden from such actions under a 1960 US Federal law that made it punishable by a $10,000 fine and up to a year in jail to offer inducements to get airplay for records.
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