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Payola Probe Heating Up

New York attorney general investigating record labels' links with radio stations

November 1, 2004 12:00 AM ET
A new investigation into the issue of payola in the music industry has been launched by New York Attorney General Eliot Spitzer. In September, each of the four global record labels -- EMI, Warner Music Group, Universal and Sony-BMG -- received subpoenas seeking e-mails, contracts and other correspondence between the labels and independent promoters, the middlemen who labels pay to push singles to radio stations.

A source close to the investigation told Rolling Stone that in addition to targeting labels, Spitzer's office is expanding the investigation to include prominent independent promoters and Top Forty, urban and alternative New York radio stations.

The investigation, first reported by the New York Times on October 22nd, revives debate about the nation's payola laws. Since 1960, it has been illegal for record labels to pay radio stations to play specific songs unless the financial transactions are disclosed to the audience. But plenty of money still goes back and forth between labels and stations. According to several sources, labels pay upwards of $150,000 to promoters to push a song at Top Forty radio stations. In smaller markets, it is common for that money to pay for items such as promotional T-shirts and bumper stickers, or to directly feed a station's budget. "I just got a call from a promoter telling me they could add a Baton Rouge station for $600," says one prominent band manager. "I get these calls all the time."

In larger markets, broadcasting conglomerates such as Clear Channel and Cox say they have stopped working with independent promoters, but there are other questionable ways for radio stations to make what they call nontraditional revenues, or NTR. Holiday radio concerts can easily raise seven figures on the strength of appearances by top musicians who are often expected to waive their fees; sources say that bands who don't perform risk losing airplay.

Executives at all four global labels refused to comment officially -- EMI issued a statement emphasizing its innocence and cooperation with Spitzer's office -- but off the record, several admitted that they are uncertain what to expect. In the past, Spitzer's investigations have led to dramatic reforms in both the investment-banking and mutual-fund industries, and some label chiefs say that such regulatory guidance would be welcome in the record industry. Still, no label wants to be the first to cut off payments to independent promoters, for fear of losing access to radio programmers. "The money that goes to radio would be much better spent elsewhere," admits one label executive.

Others wonder about the timing of Spitzer's investigation, noting that the most flagrant violations -- such as direct pay-for-play schemes -- stopped in the late Nineties. "Five or ten years ago, he might have really found something," says one executive.

The investigation has been developing behind the scenes since the start of the year. In late February, two influential music-industry executives met in Spitzer's office to advise members of the attorney general's staff about the flow of money between labels, radio stations and promoters. Radio conglomerate Clear Channel was also a topic of discussion, says a source present at the meeting, with investigators questioning whether artists were coerced to play the company's venues in exchange for airplay.

In June, Spitzer investigated a tip that Michelle Clark Promotion, a California firm, may have violated payola laws in its dealings with the highly regarded, independently owned WDST in Woodstock, New York. Representatives from WDST and Michelle Clark declined to comment.

The Spitzer investigation may have been prompted by his hiring, last May, of Susanna Zwerling, an attorney whose previous job was legal adviser to Democratic FCC Commissioner Michael Copps. Zwerling led the February meeting and has spearheaded this investigation.

"The question that the attorney general will have to decide is whether it's an extortion situation on the broadcast side or a bribery situation on the label side," says Michael Bracy of the Future of Music Coalition, a broadcasting watchdog group and think tank that has worked with the attorney general on the investigation. "From our standpoint, it's a little bit of both."

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