Download - Payola 2.0: A Proposal for Partial Deregulation of Sponsorship Identification Requirements
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Payola 2.0:Payola 2.0:A Proposal for PartialA Proposal for PartialDeregulation of SponsorshipDeregulation of Sponsorship
Identification RequirementsIdentification Requirements
Ian Smalley
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November 26th, 2008
CCTP- Broadcasting: Rights and Responsibilities
For as long as the music industry and commercial radio have coexisted they
have been inextricably linked. For record labels and the artists they represent,
commercial radio airplay presents the most sure-fire method for creating a hit record.
Getting a new song on the air for the masses to hear is paramount over any other type
of promotional effort the record label can conceivably try, and they will go to any length
to ensure that their artist gets played. This need for guaranteed radio plays has led to
the practice of paying for airplay, or as it has come to be known, payola. A term coined
by Variety in 1938, payola is the practice of making undisclosed payments or other
inducements to radio broadcast personnel in consideration for the inclusion of material
in radio programming, and it is a practice that has permeated throughout the music
industry-radio relationship in one way or another for many decades (Repyneck 1).
Payola has been an issue in broadcasting for almost as long as there has been
radio. The practice of pay-for-play has morphed through the years, constantly evolving,
slipping through loopholes, and evading federal restrictions. Despite the repeated
allegations, investigations, and statute updates, payola has always managed to survive.
The most recent emergence of payola has birthed a system that no longer deals with
drugs, bribes, and women, but rather functions as an incredibly powerful, nation-wide
institutionalized system. Through independent promoters and legal practices that barely
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circumvent the federal laws, payola continues to influence what gets played on the
radio.
It has become apparent over the years that regulation amendments and industry
investigations have been unsuccessful in quelling the payola epidemic. It is time to
address the problem in a new way by looking it directly in the eye and bringing the
issue into the open. By partially deregulating the sponsorship identification restrictions
that are in place for radio stations, payola will finally be brought out into the open and
controlled. Enacting a contractually-obligated pay-for-play system will allow radio to
function and regulate itself as a market, lowering exorbitant independent promoter costs
for labels, eliminating the need for shady business dealings between record companies
and radio stations, and allowing a more efficient allocation of promotional resources for
everyone trying to get their songs played. Payola has survived underground in one
form or another for more than sixty years, and a partial deregulation of the system will
finally bring it into the open where it can be controlled and utilized effectively.
The first signs of a pay-for-play style of promotion within the music industry can
be traced all the way back to the 1920s and 30s. Back in those days sheet music
publishers would pay famous performers like Al Jolson and Fanny Brice to play their
musical pieces in during live performances, and in return for the inclusion into the
performance the performer would receive a cut of the publishers sheet music sales
(Marcus 5). Although initial payola statues were first enacted in 1927, they were
sparingly enforced and were easily evaded (Conway 4). Payola did not gain notoriety
on a national and political scale until the late 1950s, when serious competition between
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independent record labels and established companies allowed it to flourish (Repyneck
2).
During the 1950s radio station DJs were enormously influential and powerful
people in the music world. Unlike modern radio, where on-air talent is mostly filler
between songs, with no real control over playlists, the 1950s DJ was a powerful
gatekeeper to radio airplay, and usually the one who got the final say over what got put
on the air. It was around this time that record labels began to realize that they could
exploit the DJs gatekeeping power for their benefit by bribing them to play certain
songs. Booze, broads, and bribes came to signify the situation, and payola became a
pervasive part of the radio-record label relationship (Conway 4).
Payola finally got some national attention and became a political issue in
November of 1959, when a House of Representatives subcommittee investigating quiz
show scandals widened the scope of its inquiry on corrupt broadcasting practices to
include payment for radio airplay (Marcus 5). Although payola was not explicitly illegal
under federal law, the New York District Attorney was investigating some of the more
famous DJs like Dick Clark and Alan Freed regarding their participation in bribery from
record labels. Alan Freed eventually pled guilty to two counts of commercial bribery in
1962, effectively ending his career (Repyneck 2). As the subcommittee hearings ended
in 1960 Congress passed newer anti-payola statues. Section 317 of the
Communications Act of 1934 was amended, requiring broadcaster disclosure of any
song played on air that had been paid for by money or any other type of service or
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consideration; radio stations would also be held responsible for any employee who
participated in any type of payola practice (Marcus 5).
To comply with these new disclosure requirements radio station were required to
identify any songs that were paid for, and the person, company, or corporation who paid
for them, directly after the song was played (Conway 2). This meant that with the
proper disclosure, pay-for-play was completely legal under the new laws. Unfortunately,
neither radio stations nor record labels want to make these disclosures to the listening
audiences. Record labels do not want the audience to think that they had to pay money
to get their artists song on the air; they would rather have them think that the playlist
inclusion was based solely on artistic merit of the song. Additionally, radio stations
would prefer not to break up the flow of their radio show or music playlist with constant
paid-for-by pseudo-commercials. Instead of acquiescing to the new regulations, radio
and record label executive chose instead to engage in a practice that has become
second nature when dealing with payola statutes: reinventing pay-for-play tactics,
finding loopholes, and circumventing the law.
Payola took a more outlaw and underground path throughout the 1960s and
early 1970s. Mimicking the free-thinking and wild-acting ways of this era, payola often
came in the form of illicit payments involving increasingly large sums of money, drugs,
and prostitutes (Conway 4). The bribes of the 1950s had reemerged despite the new
anti-payola laws, and in many ways they were even more pervasive in the industry. A
new payola investigation started in 1973 when a New Jersey grand jury conducting a
drug investigation on a man with mob ties found that he had close connections with the
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director of artist relations at Columbia Records (Conway 4). Senator James Buckley of
New York and the Recording Industry Association of America (RIAA) worked together
closely to conduct an investigation into Columbia Records and other major record labels
to ensure that their business dealings were legally and morally strong. They were
looking to create a program to monitor the standards of conduct for all record label
employees, one that required anyone who had any contact with radio stations to sign
anti-payola affidavits (Conway 4). Although twenty-one people were indicted by the
grand jury, the FCC inquiry was eventually made a non-public proceeding and the whole
issue lost any interest amongst the public.
Although it seems that the 1973 investigation merely provided another instance
of anti-payola statutes being weakly enforced, that event, coupled with the Racketeer
Influenced and Corrupt Organizations (RICO) statute enacted in 1970 forced payola to
reinvent itself once again (Marcus 6). Penalties under the RICO statute could be
imposed on any company found to be engaging in bribery and were much more heavily
enforced and harsh. Companies had been able to get away with a lot under the feebly
enforced payola statutes created in 1960, but the threat of heavy penalties from RICO
statutes forced record and radio companies to take a step back and create a different
system to protect themselves from serious criminal liability. This need for another
payola reinvention was how the new and more organized system of independent
promoters was born.
Independent promoters (indies) were used in the radio station-record company
relationship as middle-men; someone who could facilitate interactions between the two
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while insulating them from any possible criminal liability. Initially, when the nascent
system was more legitimate, independent promoters were hired by record companies
because of their close ties with radio stations within a certain markets (Boehlert, Payola
is Dead 2). There were so many radio stations nationwide that it was impossible for
record label staffers to monitor them all, and indies were hired and paid to lobby
program directors for song airplay, earning a flat fee on a per-project basis. As time
passed however, networks of independent promoters formed, developing powerful and
strategic relationships with both radio stations and record companies (Marcus 7). Once
paid lobbyists in separate markets, the industry of independent promotion soon evolved
into an expensive phalanx of toll collectorswho billed record companies exorbitant
fees for very little work (Boehlert, Payola is Dead 2).
Under the new system of independent promotion a record company would pay a
large retainer, as well as a separate fee based on the number of adds to radio station
playlists a song gained to the indies (Repyneck 4). The independent promoters in turn
create close relationships with many of the nations biggest radio stations, paying them
huge fees (often more than $100,000) to deal exclusively with them and gain access to
their advanced copy of playlist. Although they cannot legally have direct access over
what songs are added to the playlist, the nature of their exclusive relationship with radio
stations can influence what is added, and they in turn charge record labels a large sum
for each song add (Boehlert, Pay For Play 2).
With these strong and exclusive relationships forged, the independent promotion
industry grew throughout the early 1980s, and by 1985 the record industry was
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reportedly spending somewhere between $60 and $100 million a year on indie
promotion (Conway 4). The record labels were starting to worry about the level of
control indies had over their relationship. They were able to charge their exorbitant
prices for every song of the labels that was added, regardless of whether they
influenced the add or not. They were essentially collecting payment for every new song
that made it on the air, even if they only had to do work to influence a fraction of the
adds. Despite the apparent one-sidedness of their relationship, the labels were too
afraid to bring ties with the indie promoters, because just as they had a strong influence
over what was played on the radio, they had an equally strong influence over what was
not, and labels were too afraid of indie backlash, and the resulting loss of valuable radio
airplay to try and buck the system.
Independent promoters truly became nation-wide institutionalized powers with
the Telecommunications Act of 1996. The new Act brought about a change in radio
station ownership limits, and a resulting consolidation of ownership within the industry
(DiCola and Thomson 3). As more and more stations were owned by larger parent
companies the independent promoters who had forged strong, exclusive relationships
with these companies found themselves in a position of great power. Where they had
once been a hired middle-man to different market area radio stations, independent
promoters now found themselves as powerful toll collectors with potentially exclusive
access to almost sixty percent of the top one hundred stations in the United States
(Repyneck 4). When radio corporations decided to deal exclusively with the large
independent promotion firms they were essentially creating a closed market where the
promoters could drive up prices. Again, record labels found themselves in an
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unfavorable relationship, but one where they had to continue to pay. It was a system
driven out of fear; an insurance policy for record companies who wanted the sense of
security from knowing that they had paid the top indies (Boehlert, Payola is Dead 2).
The fear of losing the radio airplay that is so critical to making a hit song simply
outweighed the financial burden that the independent promoter relationship was causing
on them.
In spite of careful efforts to keep the way that independent promoters and record
labels could influence what was played on the radio hidden some people began to pay
closer attention to the whole radio station-indie promoter-record label system. After
receiving a number of tips from radio and music industry insiders New York Attorney
General Eliot Spitzer began an investigation into how record companies were
influencing what was played on the radio, and whether or not their methods were
violating federal anti-payola statutes (Conway 7). Spitzer subpoenaed hundreds of
emails and files from the giants of the two industries; the four major record companies
(Universal, Sony BMG, Warner Bros., and EMI) and the nine major radio corporations
(Clear Channel, Infinity, Entercom, Emmis, Cumulus, Cox, ABC, Citadel, and Pamal)
(Marcus 9).
Spitzers investigation initially targeted Sony BMG, and emails uncovered during
the probe soon showed that the label was engaging in payola and offering inducements
to radio stations and their employees in exchange for airtime for Sony Artists (Conway
7). The inducements came in many forms, everything from direct cash bribes and
vacation packages, to equipment purchased for the station and prizes furnished for
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contests. The goods and services were used to buy airplay for specific songs as well
as generally promote Sony throughout the station.
As a result of the investigation Spitzer and Sony reached a settlement on July 25,
2005. Under the terms of the settlement Sony BMG did not have to admit to or deny the
allegations, but they had to enter an Assurance of Discontinuance with the Attorney
General agreeing to stop all payola practices, pay $10 million to a New York charity, pay
$100,000 to cover all investigation fees, implement business reforms, and make a
statement acknowledging their wrongdoing (Conway 8). Allegations were made against
the other three record labels as well, and similar evidence was found. By July 2006
settlements had been reached with all four labels, totaling $30.1 million. Each labels
settlement was roughly proportionate to their relative size within the recording industry,
with EMI paying $3.75 million, Warner Bros. paying $5 million, Sony BMG paying $10
million, and Universal paying $12 million (Marcus 10).
In an effort to hold radio companies responsible as well, Spitzer sent the volumes
of evidence that he had compiled to the FCC so that they could launch an investigation.
Unfortunately the FCC was not as proactive as Spitzer, and the investigation was not as
strident. Instead of continuing the investigation the FCC eventually settled with the four
major broadcasters (Clear Channel, CBS, Citadel, and Entercom), requiring them to
agree to consent decrees that said their 1,653 stations would refrain from engaging in
any type of payola practices and forcing them to pay a total of $12.5 million in fines
(Dunbar 1).
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There is no doubt that both Eliot Spitzer and the FCCs investigations were a
step in the right direction. It was the first time that the underground payola tactics that
permeate throughout the music industry were thoroughly addressed, and the penalties
enforced were the first major repercussions that the record labels and radio stations had
ever suffered. Unfortunately the fines assessed and the consent decrees that the
involved parties agreed to will do little to stop the payola problem. Payola has survived
in the music industry for over sixty years, and has always found a way reinvent itself
and bounce back when challenged. Additionally, the $30.1 million in fines levied on the
four major record labels are only a tiny portion of their net worth when you realize that
they control more than 80 percent of the $12 billion in annual music sales (Marcus 9).
While the penalties may seem huge, they are only a slap on the wrist to these huge
corporations, and will not be much of a deterrent. Finally, the consent decrees that the
record labels signed are not very extensive in their regulation, and will not be vigilantly
regulated by the FCC. While the Spitzer investigation finally shined a spotlight on the
pay-for-play problems that have become so serious in the music industry, the penalties
brought down on the companies involved will do little to deter a practice which has
become so ingrained within the system.
It is obvious that a major change needs to be made in the way the payola issue is
addressed. Some argue for a total prohibition of all pay-for-play practices, with the
industry being strictly regulated by the government and FCC. While this vision of a
radio industry based solely on artistic merit and listener satisfaction is certainly a
pleasant and utopian one, the fact is that it will never truly be possible. Payola has
survived for the last 60 to 70 years because of its ability to adapt and evolve to every
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challenge that it has faced. Radio airplay is so valuable to record labels that there will
always be a huge incentive to figure out some way to influence a radio stations decision
on adding a song to their playlist. If the government and FCC are actually able to
strictly regulate the payola statutes, and eliminate the numerous loopholes that payola
has always snuck through, then payola will just move farther underground, adopting
even more corrupt tactics to pay for airplay and evolving into an even more crooked
system (Katunich 36).
Another approach that many would argue is the solution is the total deregulation
of payola. They say that eliminating any restrictions on paying for undisclosed radio
airplay would rid the industry of all the tricky, semi-legal tactics that payola utilizes,
turning it into an honest, money driven system (Sidak 570). While it is true that a total
deregulation of payola would eliminate the need for back-room dealings, it would also
create a market where only the industry giants could compete. By allowing complete
freedom to pay for unregulated radio airtime they would be creating bidding wars
between the major record companies. These bidding wars would drive the prices for
airplay up to astronomical levels, shutting out all but the major financial giants. When
only a few would be able to compete for airtime the radio stations would turn into their
personal broadcast networks; radio shows would become nothing more than
infomercials showcasing all the artists of the highest bidder.
It is plain to see that neither of these extremes are the proper answer to the
payola problem. Total prohibition is simply impossible to completely achieve, and total
deregulation would only allow the richest to compete essentially creating an oligarchy
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on the airwaves. Somewhere between these two extremes lies an answer however. A
partial deregulation of sponsorship identification restrictions would finally bring the back-
room payola dealings into the open, and allow them to be controlled in a manner that all
could take advantage of. By allowing for the contractually-enforced purchase of airtime,
while limiting the amount of airplay that could be purchased, a new, more effective
system will be created that will eliminate the exorbitant independent promoter costs and
allow pay-for-play to function as an efficient market.
The first aspect of the partial deregulation plan would be the actual purchase of
airtime. Record labels would be allowed to sign contracts with radio stations or
corporations to buy a specified amount of radio airplay, with prices varying based on
amount of airtime purchased, and time of day that the song was to be played. The radio
station would no longer be required to immediately disclose these song sponsorships on
air. Instead there would be weekly disclosures to trade press of all airtime bought by
record labels. Each disclosure would identify the song, artist, record label, amount paid,
and the amount of airplay received. The radio stations would also be required to file
quarterly summaries of airplay purchased in the public inspection file and maintain an
up-to-date online database that the public could access, summarizing the weekly
disclosures to the trade press. Finally, the radio station would file annual airplay
purchase reports to the FCC, allowing the FCC to monitor the prices paid and allowing
them to evaluate if the market is operating fairly and effectively. It is important to
remember that if the sponsor is immediately identified it is completely legal to pay for a
song to be played, it is just that both radio and record labels do not want to distract or
bother the listener with constant paid for by announcements. By partially deregulating
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the sponsorship identification requirements the information is still made available to the
public, albeit in a much more efficient and palatable fashion.
The second aspect of the partial deregulation proposal, contingent on the first,
would be to enact a limit on the amount of radio airplay a record company could
purchase. By capping the amount of plays a label could pay for it would ensure that
labels could not buy their success on the industry charts. An appropriate amount of
time that a label could purchase per contract would be determined by a panel of radio
and music executives working with the FCC. The FCC would have the authority to
regulate the amount of time that could be purchased as well as the amount being paid,
a precautionary measure to prevent major radio and record companies from colluding to
shut out smaller independent labels with skyrocketing prices. Once the predetermined
contract was up, the radio station and record label would be free to renegotiate a new
contract.
Some might worry that the freedom to negotiate multiple contracts would
essentially allow the labels to circumvent the airplay limits by purchasing contract after
contract, but as the radio establishes and stabilizes itself as a market, it will not be
necessary. If a label purchases a contract and the song becomes wildly popular, there
will be no need to pay additional money to keep it on the air, as it has already become a
hit and the radio will continue to play it to satisfy listeners. If a song is extremely
unsuccessful after its initial contract the label will probably no longer want to pay money
to promote it, just as a radio would be hesitant to play a song that is being poorly
received. In the middle-ground, if a song enjoys only a mild success, is when possible
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negotiation could occur to purchase more airplay and boost the songs popularity. In
radio you cant buy a guaranteed hit, only the chance at a hit. Radio will always be
driven by what the audience wants to hear, and while these contracts can help to get a
song introduced to a playlist, the supply and demand nature of radio airplay will always
be the determining factor as to whether a label wants to buy more airtime, and whether
a radio station deems the song as worthy to be on the playlist. It is important to
remember this concept when addressing the potential negative effects of payola partial
deregulation.
Detractors will argue that of any type of deregulation of payola will cause a lack
of diversity in radio. Left to the bigwig executives, playlists will become homogenous
and bland one long infomercial for record companies. These people fail to realize that
due to supply and demand and a radios need to attract listeners, there is an economic
incentive for radio stations to make programming decisions based on the perceived
artistic merit and entertainment value of a song, even in the presence of pay-for-play
exchanges (Repyneck 8). It is a very simple concept that has always driven radio; if a
station plays substandard music they lose listeners, if they lose listeners they lose their
advertising revenue. Since advertising is the most lucrative form of revenue that a radio
station has they will never do anything to jeopardize losing the listening audience that
brings in that cash. Prudent business judgment demands that all involve produce and
distribute music of a caliber that will satisfy its listeners, and the supply and demand
relationship with the listener will always be the most important factor in what gets played
on the air.
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Partial deregulation of payola will not only avoid these adverse effects to radio
quality, but it will also benefit almost all parties involved. Record labels would no longer
have to deal with the exorbitant fees charged by independent promoters. Instead of
paying thousands of dollars to the indies for every song added to a radio playlist (no
matter if the indie promoter actually influenced the add or not) they would be able enter
contractually enforceable deals directly with the radio stations. These once shady back-
room deals would be brought out into the open, allowing for more honest and efficient
negotiation. By having control over what they are paying for an exact amount of airtime
the record labels can spend their promotional budget more efficiently, allocating funds to
other areas of promotion while remaining confident that their artists song will be on the
air (Katunich 39).
This economically efficient promotion concept also translates to the smaller
independent labels who have historically struggled to get their songs on the air. In the
past it was simply impossible for these smaller outfits to pay an independent promoter
the kind of money necessary to get a song on the air. With the new partial deregulation
system the independent labels will be able to more effectively allocate their resources
behind an artist (Katunich 31). If they have an act that they truly believe is a sure thing
they can basically pool their resources behind the artist and bet it all on them. They will
be able to get that artists song on the radio, and also enjoy a far more direct return on
their investment than they would when dealing with an indie promoter. While an indie
would charge the small label for every song add to any station, under the new system
they would be able to pick the most receptive market to their artist and only pay money
to put the song on the air in those markets. The difference between paying an indie
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thousands of dollars because a their song was played a few times on at 4 am, and
paying for the promise that their song will be played during the popular evening show
targeting their niche audience is huge for a small label with few resources.
Perhaps the party that benefits most from the more economically efficient
promotion is the artists themselves. In the past it could cost hundreds of thousands of
dollars to promote an artist on the radio, and usually the artist would have to recoup all
of those promotion fees against their album sales before they actually saw any money.
The more effective allocation of the promotional budget that partial deregulation allows
will save them money in radio promotion, and also allow for increased promotion in
other fledgling areas that are becoming more popular in the digital age. New
consumers are active, migratory, and socially connected and it may be time for labels
and artists to begin to investigate new and exciting ways to promote their product
(Jenkins 18). Additionally, the artist would be confident in knowing that they had their
labels full support, as evidenced by the contracts signed to buy airplay for their songs.
In an era where radio is still the principal promotional tool, but new media is becoming
increasingly relevant, the artist will still be able to enjoy their radio airplay while
branching out into newer promotional markets.
The final player in the whole system who will enjoy the benefits of partial
deregulation of payola is the radio stations. In a way, they will not have to change
much, but their lives will become much easier. They will still be receiving money to add
songs to their playlists (from record label contracts rather than lump sums from
independent promoters), while maintaining the final word on what gets played. As was
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explained before, radio playlists will always be dictated by what gets the listeners tuned
in. The new system of deregulation will just make it easier to abide by the FCCs
consent decrees and avoid any shady or questionable deals with independent
promoters. They will not even have to worry about their sponsorship disclosures
disrupting the radio broadcast since they will no longer be immediately required. Partial
deregulation of payola would allow the radio stations to continue functioning as they had
before while further distancing them from any potentially improper interactions.
It is plain to see that a partial deregulation of sponsorship identification
requirements will allow record labels and radio stations to drop the back-room payola
dealings that have plagued the system for years and allow them to operate more
efficiently and effectively. Under Section 317 of the Communications Act it is
legislatively possible for the FCC to waive the necessity of immediate on-air
identification in any case or class of cases with respect to which it determines that the
public interest, convenience or necessity does not require the broadcasting of such an
announcement (Sidak 570). If Congress could authorize them to waive the
requirement, they could quite obviously authorize them to utilize an alternative method
of disclosure. The FCC would still require that each station post disclosures in weekly
trade press and in online databases, file quarterly summaries in the public file, and
submit annual summaries with an FCC inspection committee to monitor the new system
for its fair practices and allocative efficiency.
For over sixty years payola has been an ubiquitous and influential presence in
radio broadcasting. From the free-wheeling drugs and hookers schemes of the 60s
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and 70s to the itemized billings of current-day independent promotions corporations,
pay-for-play practices have always found a way to evolve with the times, continuously
slipping through loopholes and circumventing poorly enforced federal laws. It is time
that these underground tactics be brought out in the open and addressed. A partial
deregulation of sponsorship identification requirements will remove many of the
questionable elements of payola and allow the purchase of radio airplay to function as a
market, creating a more efficient and honest system for everyone involved. Radio
stations will no longer have to worry if their dealings are violating FCC regulations or
federal statutes. Record labels will no longer be held hostage by independent
promoters and their fraudulent billings. Artists will be able to more efficiently use their
promotional budget to create a buzz around their band. Listeners will still enjoy a
diverse radio playlist that is dictated by what they want to hear. Every attempt to
completely kill payola in the past has failed, and often made the system stronger, so it is
time to use the system to our advantage, as an allocative tool in the radio market.
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