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Will the latest payola scandal shake up the radio and music industries?

You couldn't pay some people to listen to Celine Dion's music. But you could pay some DJs to play it.

Eliot Spitzer, New York's attorney general and aspiring governor, has proven what many people long suspected: That payola is alive and well in the music industry. Spitzer's investigation confirmed reports that record label promoters, and independent promoters hired by the labels, had exchanged cash and other bribes for airplay on commercial radio stations. His office's Assurance of Discontinuance, released on July 25, lays out the case. A collection of e-mails from Sony employees--some mentioning radio stations in North Carolina--provides damning evidence, documenting an elaborate system of pay-for-play that involved everything from trips to Vegas to plasma TVs to cash on demand. It's the details that really sing. (Spitzer's full report and the correspondence between Sony employees is online at www.oag.state.ny.us/press/2005/jul/jul25a_05.html.) Sony BMG's press office did not return repeated calls for comment. In a statement released last month to the Associated Press, the company said that some of its employees had engaged in "wrong and improper" practices, and said it looked forward to "defining a new, higher standard in radio promotion." The company has agreed to pay $10 million as part of its settlement with Spitzer's office, and has agreed to institute corporate-wide reforms in order to monitor its promotions and accounting.

At WRHT 96.3 "The Hot FM" in Greenville, N.C., music director Blake Larson was fired the day after Spitzer released documents showing that Larson had raked in a $1,365 laptop, $900 in airfare and a PlayStation 2 from Epic, a Sony subsidiary.

(Neither WRHT nor its parent company, Archway Broadcasting, based in East Point, Ga., returned calls for comment, nor did Larson.)

Still, revelations of Sony's payola schemes elicit no more than a cynical shrug from many veterans of the music industry.

But this could be the tip of the iceberg. Three other record company giants are also under investigation: Universal Music Group, Warner Music Group and EMI. And it looks like radio will be held accountable for its part at last. On Monday, Bush-appointed Chairman Kevin Martin announced that the Federal Communications Commission will investigate whether radio stations violated FCC pay-for-play rules, which require stations to let listeners know if a song is being played in exchange for payment. A single violation can rack up $32,500 in civil fines; if the Justice Department pursues criminal penalties, fines of $10,000 and up to a year of jail time can apply.

It's taken them long enough. Smaller scandals over the years prompted radio conglomerates Clear Channel and Infinity to stop doing business with independent promoters, often the middlemen of the payola system. Both companies have turned over documents to Spitzer and pledged to tighten their accounting policies. Spitzer has urged FCC action throughout his investigation. So has Commissioner Jonathan Adelstein, who said Monday in a written statement, "I believe this payola scandal may represent the most widespread and flagrant violation of any FCC rules in the history of American broadcasting.

"The airwaves belong to the public, not the highest bidder," he added. "We owe it to the American public, music lovers and creative artists--the ones who are hurt the most--to end this deception."

But will getting the nitty-gritty out in the open really change anything? While the revelations are hardly shocking, the FCC probe offers hope that the impact will be profound. It might be too late to save radio or the major labels. But with new technologies changing the playing field, the expectation that media companies abide by the law and be accountable to the public for their business practices couldn't come at a better time.

Payola entered the music industry vocabulary with a 1938 article in Variety, as Spitzer notes in his legal document by way of background. Payola scandals rocked the independent radio world of the 1950s and '60s, culminating in a congressional investigation in 1959 and a law passed in 1960 aimed at stopping the practice. But payola never really went away.

The consolidation of both the radio and recording industries in the 1990s created a newly fertile environment. "In the 45 years since the enactment of the federal payola statutes, the practice of pay-for-play has changed significantly," the document reads. "The bribes to local disc jockeys have evolved into an elaborate corporate strategy, developed and brokered at the highest levels of the record labels and radio broadcasting companies." At big conglomerates such as Clear Channel and Infinity Broadcasting, "record label executives can, and do, negotiate large scale promotion deals netting airplay across a large number of stations serving a host of different geographical markets."

What's so remarkable about the Sony e-mail correspondence is the casual arrogance and the elaborate measures employees clearly took to conceal their actions--one train of e-mails instructs an employee how to purchase a laptop for a DJ with a credit card without alerting the accounting department to the charge. In another, a list of expenses includes a parenthetical note, "will be invoiced for T-shirts."

Spitzer believes the corruption goes all the way up the corporate ladder and all across the industry. "The Attorney General finds that the practices discussed below are pervasive within the music industry and by no means unique to Sony BMG," his document says.

But one local radio vice president doesn't see it that way. "It's unfortunate that this takes place in some stations in some cities, but I don't think it's typical in our industry at all," says Phil Zachary, executive vice president and chief operating officer of Curtis Media, which owns 15 radio stations in North Carolina, including 96 Rock and WQDR. "I think Eliot Spitzer has identified a few bad eggs."

In fact, Zachary says the consolidation of the music industry has effectively led to less pressure on DJs from promoters than he saw as a program director 20 years ago. "There's probably two or three slots available to get on a playlist every week, and 20 years ago there might have been 60 records vying for that position. Now there are maybe a dozen or so," he says. "The labels still have their priorities and their timetables, but I don't see the kind of Wild West free-for-all that there was in the '80s or even the '90s." Zachary says that while working at a station in New Orleans in the '80s, he heard a rumor that a competitor had a swimming pool built in his backyard courtesy of a record company, and that another competitor allowed a major label to pick up the tab for his daughter's Caribbean wedding. "It was always viewed by some people as a victimless crime. But it's against the law, that's the problem; it's not about who gets hurt, it's against the law."

Curtis Media doesn't take payola, Zachary says. Nor do they work with independent promoters. He says it's a shame that the Sony revelations perpetuate the idea that all radio is pay-for-play. "In the minds of some cynics, this is one more piece of damning evidence that radio is controlled by someone other than local programmers," he says. "That radio has gone lock, stock and corporate. That's not who we are as a company and I hate that perception. We spend an awful lot of time and money here in Raleigh staying connected to the local music community."

Yet for many independent artists and record labels in the Triangle, the payola scandal might as well be happening a world away.

Artist and producer Chris Stamey says he's "clueless" about this aspect of the biz. "I have always wondered how this works, but I have never experienced it," he says. "I've had a hand in making lots of records, but when the music's done they leave me, after that I'm clueless. I'm pretty certain no one ever spent payola money on my own recordings--the only ones I know about after they left the building. My successes--such as Le Tigre, Alejandro, Tres Chicas--all seem to have real people who like them and little radio play without this element."

Most local labels don't have the means to bribe DJs, nor the inclination. "Obviously, as a small, independent label we can't afford to use such practices, and wouldn't even if we could," says Brad Farran of the Raleigh-based Pidgeon English Records. "I find that it indicates a laziness on the parts of corporate radio and major recording companies. And this has a negative impact on the culture in general. Music is being broadcast not for its artistic merit, but because their representatives are lining the pockets of those who are in control of what gets played. Thus, we are stuck with fewer choices of what to listen to."

But it's not just Top 40 radio that's gone down this road. Hip-hop artist Cesar Commanche says the practice is pervasive in the club scene, too. "A large amount of major market DJs and some VJs have started clubs where you as a record promoter must supply vacations, gifts and money to the DJ clubs themselves to get your record played," he says. "I wonder if it goes on in satellite radio, and if not now, when will it happen?"

But radio might have already done itself in, with help from satellite radio and digital music players like iPod. A survey by the industry research group PlanetJam finds that 23 percent of iPod/MP3 player owners are now listening to their favorite radio station less, and ownership of those devices is expected to double in the next year. Those technologies give listeners what bought playlists don't: better music and more choices.

Podcasting, satellite radio and whatever's coming next will be outside the jurisdiction of the FCC. In a media landscape full of infomercials, product placement and synergy between broadcast stations and movie studios, how will we know payola from real programming, bribery from business?

To understand why it matters, it helps to know how it works. Here's the Sony payola system in a nutshell, as outlined by Spitzer and the correspondence he released.

It all starts at the record label's promotions department, where priorities are set--which artists, and which songs, they'll be pushing that week. A promoter's job is simple: Get the songs on the air.

Airplay means sales, for two reasons. First, listeners hear the song and presumably head to Best Buy to get it; second, the industry charts are based on airplay, and being in the Top 10 means more sales.

That's the context for enervated messages like this one, dated April 2003: "WHAT DO I HAVE TO DO TO GET AUDIOSLAVE ON WKSS THIS WEEK?!!? Whatever you can dream up, I can make it happen." Over at the station, research (including ratings, chart position and sales) weighs heavily in the creation of a given week's playlist. Each week, some songs cycle out and some are added--two or three on average. Those "adds" are the promoter's elusive goal.

To get them, promoters offer cash, as well as softer bribes such as in-station appearances by big-name stars, free concert tickets, airfare and hotel stays, gift certificates and electronics. Contests take may forms. Some involve giveaways to listeners, some to station employees. But the understanding is clear: Airplay is expected in return.

This message promoting a single by the band 311, dated May 2004, is particularly direct: "You have room for a money record this week? 311 'Love Song' Big $$$"

A message dated October 2004 urges a programmer at KXXM, a Clear Channel station in San Antonio, to play the song "Predictable" by Good Charlotte as apparently agreed in exchange for two trip giveaways. Sony employees kept stations accountable for their agreements by checking the number of spins recorded by BDS, an airplay monitoring company. "We all agreed that the single would start slow, but that the single would get 1 good spin plus the overnight spin.... It is not our procedure to be BDS police. We feel that the spins effectively carry out the promotions we have in place with KXXM. We know you have given 1 of the 2 trips away. Can we now with everything positive going on get those 7-10pm daypart spins started now?" In addition to bribery and cajoling, the label's own employees are often told to call the stations to place requests. An undated note gives instructions to call in to Open House Party, a Sunday night request show that runs on 18 stations across the country, giving the host's name and request line number. "As for Saturday nights, you need to rotate your people. My guys on the inside say that it's the same couple of girls calling in every week and that they are not inspired enough to be put on the air. They've got to be excited. They need to be going out, or getting drunk, or going in the hot tube [sic], or going clubbing ... you get the idea."

Of course, payola wouldn't work if DJs weren't taking bribes, and sometimes the guys on the other end get a little hard to control. Dave Universal, a DJ at WKSE in Buffalo, emerges as the most outrageous single character in the correspondence. One troubled employee writes to another in September 2004 that he thinks bribes to Universal are not worth the expense. "Two weeks ago it cost us over $4000.00 to get Franz [Ferdinand] on WKSE. That is what the four trips to Miami and the hotel cost. Yesterday I specifically heard [a coworker] tell Dave Universal that the cost was outrageous and we needed Good Charlotte to make up for some of the costs. [...] At the end of the day, Universal added GC and Gretchen Wilson and hit Alex up for another grand and they settled on $750.00. So almost $5000.00 in two weeks for overnight airplay. [...] We are now once again on Dave Universals [sic] agenda in which [sic] we swore we would never do again."

A Sony requisition dated September 2004 details the $1,365 laptop shipped to an address in New Bern "in support of George Michael," charged to Epic Pop Promotion under "contest." That computer went to WRHT music director Blake Larson's girlfriend, thanks to an Epic employee who fabricated a name and social security number for a "contest winner" in the label's accounting system, Spitzer's report says.

Then there's bought airtime that's supposedly advertising, but still dings the monitoring services that affect chart position. In e-mails dated December 2003, two Sony employees compile an inventory: "10/28 WRHT $1200 Fuel spin program (46x) Did we ever use this?" To which the other replies, "I thought the WRHT Fuel Spin program (it was a time buy right?) was used but I cannot find it in my PO system. So, it must still be available."

Let's break that down: They've got $1,200 to pay WRHT to play a song by the band Fuel 46 times. It'll sound like that song is part of the playlist, though technically it will be a commercial. At least one of the employees keeps track of this in a purchase order system at the office. Buying time on the air is a regular practice. Under federal anti-payola laws, though, stations are supposed to tell listeners upfront when they've received cash or consideration for airplay.

The lengths employees went to in order to circumvent the law make it clear that, while they might not have thought it was wrong, they knew it was illegal. According to Spitzer, this elaborate system was dictated from the top. The e-mails from junior promotions department employees were sent in order to obtain approval and file regular reports with their superiors.

Where does the money come from? From the artists' promotions budgets, which show up as a line item on each artist's royalty statement. Every Sony artist has been subsidizing bribes to get other artists' songs on the air. That makes every artist signed to Sony BMG complicit, knowingly or not, in the payola scandal. Some artists are making noise about suing their labels. Then there are the unsigned artists, and those on independent labels too small to play the money game. Spitzer's investigation inspired 125 independent record labels to form a new trade group called the American Association of Independent Music (A2IM), which held its first meeting in New York in June. As the facts surface, the potential for the various parties--labels, artists, promotion companies--to sue one another is mind-boggling.

Interestingly, most of the stations noted in the Sony case are in smaller markets--upstate New York, for instance, and coastal Carolina. Curtis Media's Phil Zachary says it's always been that way. "That's how a hit record gets started, in a smaller market where they're more willing to take risks," he says. "The labels work small markets real hard to try to get a start. As Greenville comes in then comes Raleigh, then comes Atlanta, and so on." That's not the only reason, however. "It's the smaller markets where the program directors and the people who chose the music are not quite as savvy, may not be as mature, may not know the rules as well, and are typically not compensated as well as in the larger markets," Zachary says. "They tend to be tempting targets for those in the record industry that are unscrupulous."

Taking the music industry to court is a tricky business. Not only did Sony's practices violate federal payola statutes (pay-for-play is a misdemeanor under the 1960 Communications Act amendments), it also violated New York state's General Business Law, which empowers the attorney general to seek injunctive relief in cases of deceptive business practices.

Payola would also seem to violate North Carolina law, namely the commercial bribery statute. While in New York, the state itself took up the case, those familiar with the statutes in North Carolina Attorney General Roy Cooper's office said the decision to take action against alledged violators will be up to the district attorney of the county where the violation takes place to investigate. Other North Carolina radio stations were mentioned in the Sony correspondence, though not directly linked to pay-for-play arrangements: G105 in Raleigh, WEND in Salisbury, and WSTW in Wilmington, and several based out of state whose signals reach across the border, such as WFXH in Hilton Head, WFBC in Greenville, S.C., and WWST in Knoxville.

Legal penalties aside, it's hard to predict what the real impact of all these revelations will be. "What I hope comes out of this," Zachary says, "is that the record industry realizes that it needs better product--the music itself."

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