Pay for On-air Play

RAY SUAREZ:

Well, music industry giant Sony BMG Music Entertainment has agreed to pay a $10 million fine in a settlement over allegations of illegal payola, or pay-for-play transactions between its representatives and radio station programmers.

The fine was announced yesterday by New York State Attorney General Eliot Spitzer, who said the practice is widespread throughout the music industry.

Joining me now to discuss payola and the frequency of this practice is Professor Chris Sterling of George Washington University, a radio historian and editor of a three-volume encyclopedia of radio.

RAY SUAREZ:

And Professor Sterling, what kinds ever things are we talking about that live under that umbrella called payola?

CHRIS STERLING:

Anything that involves giving what lawyers often call a consideration — it can be money, it can be drugs, it can be women — or I suppose men, let's be equal here. Anything that is a service and/or useful or desired by programmers on radio stations can be asked for and is often given.

RAY SUAREZ:

Well, promotion isn't always illegal. What's the difference in law between having a commercial for the next Ludacris or 50 Cent's release, or being paid to play Ludacris's new song?

CHRIS STERLING:

A crucial difference. Congress said in 1960 in a modification of the law after a huge blow-up about payola, the first big one about radio payola, that payola in broadcast stations was illegal. It was not in the public interest for things to be done that the public didn't know about, that listeners didn't hear.

We all assume that an advertisement on television or radio is paid for. So that's overt, and that's obvious. But when money is paid and, therefore, results are skewed, and Song X is on top of the charts, when in fact it would not, perhaps, normally be on top of the charts, the commission holds that's misleading the public.

RAY SUAREZ:

Well, Sony BMG agreed to pay a $10 million fine in the context of a $300 million promotion budget. Is it a big fine?

CHRIS STERLING:

No. It's a big fine to any of us, thinking about $10 million, but, no; it's pocket change. It's a cost of doing business.

It is, in fact, much less than they've been spending, and the other firms have been spending, on payola — if Spitzer is right, on payola on a yearly base. It's an old problem. It's gone on for a long time. Little crises bubble up periodically. This is the latest bubbling up.

RAY SUAREZ:

Now, record labels have for a long time given away free things —

CHRIS STERLING:

Right.

RAY SUAREZ:

Records themselves, trips, promotional junkets, food — and periodically there are attempts to crack down on it. Does it just shift where the action is?

CHRIS STERLING:

In many ways it does. Two decades ago there was a flap that was also partly centered in New York about these independent promoters who were between the record firms and the radio industry, and the record companies said they would no longer use independent promoters.

Well, funny thing, they've been saying the same thing over the last couple of years. Part of the agreement — I haven't seen the actual copy — but part of the agreement apparently says the same thing now. People find new ways to do the same thing.

The music industry is under terrific pressure. There are lots of firms, despite consolidation. There are still lots of firms, there are lots of labels. There are a huge number of artists. There are an awful lot of records and the records will not survive if they don't get air play. That's what it's all about.

But what makes it complex is the intertwining of the record industry and the radio industry. Neither could successfully survive without the other. And that kind of a relationship, which has been there for nearly 80 years, 85 years, leads to this kind of thing. It's going to be very hard to stamp out.

RAY SUAREZ:

Well, here was a case where the New York state attorney general was going after a big record label, but radio stations are regulated by the federal government. Is the FCC interested? Has the FCC been enforcing these laws?

CHRIS STERLING:

In the last ten years the FCC has issued one fine on payola for $8,000, which isn't even pocket change. It doesn't mean they're not paying attention. The FCC acts when complaints are brought to it.

Commissioner Adelstein has said over the last day or so, based on what he's been hearing about New York's findings, that the commission should look into this. Now, let's remember something crucial: Politics is almost as important as money in all of this. Spitzer is running for governor of New York next year. That's not to say laws haven't been broken. But that's an issue. He's clearly also looking for attention.

The commissioner is well aware Congress is unhappy — several people in Congress have already talked about introducing new laws. And it seems rather likely that Congress may make noise, sort of clear its regulatory throat.

The commission is a creature of Congress. Everything in this town is political. The commissioner may well be thinking very honestly that he's very concerned about the issue — that's not to denigrate that, but clearly politics is playing a huge part. And it's following on last year's crisis about indecency.

Ironically, 40 years ago, when the payola thing first came up, it followed a crisis a year before about setting — about television quiz shows. It was a huge crisis, turned the industry upside down. So it's rather odd that in both cases payola has come in second.

RAY SUAREZ:

Well, since those big payola scandals you were talking about — Alan Freed in the 1950s —

CHRIS STERLING:

Yes.

RAY SUAREZ:

Radio station consolidation has gone on, so more and more stations are owned by fewer and fewer companies.

CHRIS STERLING:

Right.

RAY SUAREZ:

Did it change how payola works? When you want to get Reba McIntyre on-air play, you now go to one person to get it on 60 stations?

CHRIS STERLING:

Not in basis. Not in basis, no. Consolidation is an issue on both sides of the table. There has been consolidation, substantial consolidation in the music business. The same thing has happened in radio. That is not central.

It's affected the issue. It's probably modified some of the patterns, but it would have happened anyway, just as it did 40 years ago; just as it came up again 20 years ago and as it will probably come up again.

RAY SUAREZ:

Is this policeable?

CHRIS STERLING:

It's almost impossible. We're talking about a culture in the music business — and let's be fair: It happens in a variety of industries, and it's not illegal.

It happens in the grocery businesses. The number of facings of Kellogg's cornflakes in the grocery store is not set up because the manager thinks he likes Kellogg's and he's going to have three facings instead of just two; it's set up as part of an agreement with the distributor. There's nothing illegal about it. It's part of promotion.

Look at doctors who go on wonderful cruises to learn about new drugs from drug companies. Again, there's nothing illegal about it.

CHRIS STERLING:

It's illegal here because it deals with radio and television, which is, as you say, regulated by the Federal Communications Commission, and again, specifically, in 1960, Congress modified the ruling Communications Act to say it cannot — should not — happen in radio and television, and if it does, you could go to jail. You could get fined. You could lose your license.

RAY SUAREZ:

It didn't look, did it, from the memos released by Eliot Spitzer, as the fruit of his investigation, like these people thought they were doing anything wrong, did it?

CHRIS STERLING:

It's amazing what people will put on e-mail and think that nobody will find it. I think some of them clearly knew it was wrong. Certainly the higher folks in both the music and radio business are well aware of this.

Many broadcast stations have agreements you sign if you're a programmer — certainly if you're a DJ — that speak to this kind of thing. Some folks have been fired on both sides of the aisle in the last few days. I think they're tokens, I really do. I think they're sort of taking a hit for a larger issue.

RAY SUAREZ:

Will this change practice in the music business?

CHRIS STERLING:

Briefly, briefly, but only briefly. It will come back. Spitzer has gotten a payment, an agreement, a settlement, with one of the big players. There are three or four more, and the question is will they fall in line and simply pay to make this go away, or will they fight it?

RAY SUAREZ:

Professor Sterling, thanks a lot.

CHRIS STERLING:

My pleasure.